Selected Financial Data
Owned Basis

<TABLE>
                                                                Year Ended December 31,



(In thousands, except EPS, dividends and stock prices)                                                      Four-Year
                                                                                                            Compound
                                          2000          1999          1998          1997          1996     Growth Rate
                                          ----          ----          ----          ----          ----     -----------
Income Statement Data:

<S>                                    <C>           <C>           <C>           <C>           <C>            <C>
Net interest income ................   $  371,772    $  180,328    $   82,698    $   57,243    $   26,088      94.3%
Provision for loan losses ..........      388,234       174,800        77,770        43,989        18,477     114.1
Other operating income .............      933,787       623,772       315,480       187,796       126,222      64.9
Other operating expense ............      594,414       437,984       227,160       139,167       101,287      55.6
------------------------------------   ----------    ----------    ----------    ----------    ----------     -----
Income before income taxes, extra-
    ordinary loss and cumulative
    effect of accounting change ....      322,911       191,316        93,248        61,883        32,546      77.5
Tax rate ...........................         38.5%         39.7%         38.5%         38.5%         38.5%
Net income (1) .....................   $  195,153    $  115,363    $   57,348    $   38,058    $   20,016      77.5
------------------------------------   ----------    ----------    ----------    ----------    ----------     -----
Per Common Share Statistics (2):
EPS - diluted (1)(3) ...............   $     2.11    $     1.41    $     0.94    $     0.63    $     0.39      52.5
Stock price (year-end) .............        26.31         23.79         16.77         11.42          8.00      34.7
Dividends paid .....................        0.033         0.017         0.013         0.010            --
Shares outstanding (year-end) ......       62,243        57,919        57,779        57,675        57,675
Shares used to compute EPS (diluted)       92,582        76,324        59,905        60,715        51,386
------------------------------------   ----------    ----------    ----------    ----------    ----------     -----
Selected Operating Data:
Total accounts .....................        4,464         3,680         2,972         2,293         1,418      33.2
Year-end loans .....................   $3,202,884    $1,763,009    $  756,899    $  480,626    $  215,329      96.4
Year-end assets ....................    3,736,025     2,045,082       945,719       538,662       286,616      90.0
Average loans ......................    2,484,292     1,167,072       596,380       356,817       149,809     101.8
Average interest-earning assets ....    2,707,769     1,303,528       636,133       403,375       171,877      99.2
Average assets .....................    2,826,653     1,449,297       774,167       417,903       209,299      91.7
Average total equity ...............      759,633       542,050       219,835       158,180        92,852      69.1
Deposits ...........................    2,106,199       775,381            --            --            --
Debt ...............................      356,066       345,012       310,896       244,000        55,163      59.4
Preferred stock ....................      360,421       329,729       201,100            --            --
Return on average assets (1) .......          6.9%          8.0%          7.4%          9.1%          9.6%
Return on average total equity (1) .         25.7%         21.3%         26.1%         24.1%         21.6%
Selected Enhancement Services Data:
Revenue:
Credit protection ..................   $  149,421    $  109,502    $   73,773    $   47,550    $   25,487      55.6
Membership products ................       75,981        31,858        13,301         4,905         1,207     181.6
Warranty/other .....................       40,798        33,731        22,049        12,077        23,579      14.7
                                       ----------    ----------    ----------    ----------    ----------
Total revenue ......................      266,200       175,091       109,123        64,532        50,273      51.7
Deferred revenue ...................      199,796       127,541        72,866        35,461         2,060     213.8
Active members .....................        6,067         4,902         3,619         2,997         1,981      32.3
</TABLE>

(1)  Excluding the one-time, non-cash accounting impacts from the adoption of
     Staff Accounting Bulletin No. 101 for our debt waiver products in March
     2000, and the conversion of the Thomas H. Lee Series B Preferred Stock, 12%
     Senior Notes and cancellation of warrants in June 1999. (Refer to Note 7 of
     the Consolidated Financial Statements for additional information.)
(2)  Amounts adjusted for three-for-two stock split effected on June 15, 2000.
(3)  Earnings per share is calculated assuming the Company was incorporated at
     the beginning of the first year shown.





                                       25
<PAGE>

<TABLE>

Selected Financial Data
Managed Basis (1)                                               Year Ended December 31,

                                                                                                           Four-Year
                                                                                                           Compound
(In thousands, except EPS)               2000          1999          1998           1997         1996     Growth Rate
                                         ----          ----          ----           ----         ----     -----------
Income Statement Data:
<S>                                  <C>           <C>           <C>           <C>           <C>              <C>
Net interest income ..............   $1,074,875    $  828,246    $  505,812    $  306,361    $  143,491       65.4%
Provision for loan losses ........      917,905       742,537       534,124       319,299       136,305       61.1
Other operating income ...........      760,355       543,591       348,720       213,988       126,647       56.5
Other operating expense ..........      594,414       437,984       227,160       139,167       101,287       55.6
----------------------------------   ----------    ----------    ----------    ----------    ----------       ----
Income before income taxes, extra-
    ordinary loss and cumulative
    effect of accounting change...      322,911       191,316        93,248        61,883        32,546       77.5
Tax rate .........................         38.5%         39.7%         38.5%         38.5%         38.5%
Net income (2) ...................   $  195,153    $  115,363    $   57,348    $   38,058    $   20,016       77.5
----------------------------------   ----------    ----------    ----------    ----------    ----------       ----
Per Common Share Statistics (3):
EPS - diluted (2)(4) .............   $     2.11    $     1.41    $     0.94    $     0.63    $     0.39       52.5
----------------------------------   ----------    ----------    ----------    ----------    ----------       ----

Selected Operating Data:

Year-end loans ...................   $9,273,108    $7,281,322    $5,315,042    $3,546,936    $1,615,940       54.8
Year-end assets ..................    9,806,249     7,563,394     5,503,862     3,604,972     1,687,227       55.2
Average loans ....................    8,021,437     6,003,791     4,000,467     2,294,893     1,018,856       67.5
Average interest-earning assets ..    8,244,914     6,140,247     4,040,220     2,341,451     1,040,924       67.8
Average assets ...................    8,332,500     6,269,760     4,159,171     2,355,978     1,078,346       66.7
Return on average assets (2) .....          2.3%          1.8%          1.4%          1.6%          1.9%
Equity to managed assets .........          9.0%          8.2%          7.9%          4.9%          8.2%
Net interest margin (5) ..........         13.0%         13.5%         12.5%         13.1%         13.8%
Loan loss reserves ...............   $  763,975    $  619,028    $  393,283    $  244,084    $   95,669       68.1
Delinquency ratio (6) ............          8.3%          7.6%          6.8%          6.6%          5.5%
Loan loss reserve ratio ..........          8.2%          8.5%          7.4%          6.9%          5.9%
Net charge-off ratio (7) .........          9.7%          9.0%         10.1%          8.3%          6.2%
</TABLE>

(1)  The Company analyzes its financial performance on a managed loan portfolio
     basis whereby the income statement and balance sheet are adjusted to
     reverse the effects of securitization.
(2)  Excluding the one-time, non-cash accounting impacts from the adoption of
     Staff Accounting Bulletin No. 101 for our debt waiver products in March
     2000, and the conversion of the Thomas H. Lee Series B Preferred Stock, 12%
     Senior Notes and cancellation of warrants in June 1999. (Refer to Note 7 of
     the Consolidated Financial Statements for additional information.)
(3)  Amounts adjusted for three-for-two stock split effected on June 15, 2000.
(4)  Earnings per share is calculated assuming the Company was incorporated at
     the beginning of the first year shown.
(5)  Includes the Company's actual cost of funds plus all costs associated with
     asset securitizations, including the interest expense paid to the
     certificate holders and amortization of the discount and fees.
(6)  Delinquency ratio represents credit card loans that were at least 30
     days contractually past due at year end as a percentage of year-end
     managed loans.
(7)  Net charge-off ratio reflects actual principal amounts charged off, less
     recoveries, as a percentage of average managed credit card loans.







                                       26
<PAGE>



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." This
discussion should be read in conjunction with the consolidated financial
statements and the related notes thereto.

General
-------

     We are an information-based direct marketer and provider of consumer
lending products and enhancement services primarily to moderate-income
consumers. We underwrite and offer credit cards and enhancement services to
moderate-income consumers that have historically been overlooked by other credit
card companies and in doing so provide opportunities for such individuals to
establish bankcard credit. Our products are available throughout the United
States.

                  Business Segments

         We measure performance and operate in two business segments:

*    Consumer Lending Products, which are primarily unsecured and secured credit
     cards issued by Direct Merchants Bank; and

*    Enhancement Services, which include debt waiver programs, membership clubs,
     extended service plans and third-party insurance offered to our credit card
     customers, customers of third parties and the Internet market.

     We receive income from our consumer lending products through: interest
charges and other finance charges assessed on outstanding credit card loans;
credit card fees (including, for example, annual membership, cash advances,
overlimit fees, and past due fees); and interchange fees. The primary expenses
of this business are the costs of funding the loans, provisions for loan losses
and operating expenses including employee compensation, account solicitation and
marketing expenses, and data processing and servicing expenses. Profitability is
affected by the number of responses and approval rates compared to solicitation
efforts, loan growth, interest spreads on loans, credit card usage, credit
quality (delinquencies and charge-offs), card cancellations and fraud losses.

     In addition to sales to third parties, the enhancement services business
derives benefits from our consumer lending products business because we
cross-sell these services to our credit card holders. Nonetheless, our two
business segments differ with respect to the factors that affect profitability,
including how income is generated and how expenses are incurred. These
differences require us to manage our operations separately.

     We receive revenue from our enhancement services through fees for those
services. Expenses include costs of solicitation, underwriting and claims
servicing expenses, fees paid to third parties and other operating expenses. The
primary factors that affect profitability for this business are: response rates
to solicitation efforts, returns or cancel rates, renewal rates and claims
rates.

                  Spin Off

     You will see references in the following discussion of our financial
performance to the "spin off." Prior to September 25, 1998, Fingerhut Companies,
Inc. owned 83% of our common stock. During the third quarter of 1998, Fingerhut
received written approval from the Internal Revenue Service







                                       27
<PAGE>
to distribute its interest in our Company to Fingerhut's shareholders in a
tax-free spin off. Fingerhut executed this spin off on September 25, 1998, and
at that time we ceased to be a subsidiary of Fingerhut.

Results of Operations

Year Ended December 31, 2000, Compared to Year Ended December 31, 1999

     Net income applicable to common stockholders for the year ended December
31, 2000, was $163.5 million, or $2.11 per diluted share, up from net loss
applicable to common stockholders of $61.6 million, or $1.07 per diluted share
for 1999. Net loss applicable to common stockholders for the year ended December
31, 1999, included a $152.4 million one-time, non-cash accounting impact from
the issuance of the Series C Perpetual Convertible Preferred Stock,
extinguishing the Series B Preferred Stock, the 12% Senior Notes, and the
ten-year warrants reported in the second quarter 1999. Income before these
extraordinary items for the year ended December 31, 1999, was $115.4 million, or
$1.41 per diluted share. The increase in net income results from an increase in
net interest income and other operating income partially offset by increases in
the provision for loan losses and other operating expenses. These increases are
largely attributable to the growth in average managed loans and active
enhancement members. Average managed loans increased to $8.0 billion for the
year ended December 31, 2000, from $6.0 billion in 1999, an increase of 34%, and
active enhancement services members grew to 6.1 million at December 31, 2000,
from 4.9 million in 1999. In addition, credit card charge volume was
approximately $8.1 billion for the full year 2000, a 41% increase over the same
period in 1999.

     The provision for loan losses on a managed basis was $917.9 million in
2000, compared to $742.5 million in 1999. The increase primarily reflects higher
credit card loan balances and the addition of new credit card portfolios as well
as an increase in net charge-offs. The reported managed net charge-off rate was
9.7% in 2000 compared to 9.0% in 1999. The charge-off rate before the impact of
purchase accounting related to portfolio acquisitions for the year ended
December 31, 2000, was 9.9% compared to 10.4% for the year ended December 31,
1999.

     Other operating income on a managed basis increased $216.8 million, or 40%,
to $760.4 million for the year ended December 31, 2000. This increase was
primarily due to credit card fees, interchange fees and other credit card
income, which increased to $505.2 million for 2000, up 32% over $382.2 million
for 1999. In addition, enhancement services revenues increased 52% to $266.2
million for 2000, up from $175.1 million for 1999. These increases were
primarily due to the growth in total credit card and enhancement services
accounts, an increase in outstanding receivables in the managed credit card loan
portfolio, development of new third-party relationships and the creation of new
products.

     In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." This
SAB formalized the accounting for services sold with a full refund, requiring
all companies to defer recognition of service revenues until the cancellation
period is complete. We adopted this practice for membership programs in 1998,
before the official guidance was released. Due to the adoption of this SAB, we
recorded a cumulative effect of change in accounting principle in the first
quarter of 2000, with a net after-tax impact of $3.4 million. This one-time,
non-cash adjustment was to defer recognition of debt waiver revenue until the
cancellation period is complete, which is one month. Prior to this change, we
recognized one-half of the current period revenues in the month billed.

     Other operating expenses increased to $594.4 million in 2000, compared to
$438.0 million in 1999. This increase was due to continued investments in our
infrastructure in order to service the growth in our managed credit card loan
portfolio and our enhancement services members, as well as an increase in
overall marketing expenditures. Our managed operating efficiency ratio increased
to 32.4% in 2000 from 31.9% in 1999, due to the investment in infrastructure and
marketing programs discussed above.






                                       28
<PAGE>
Managed Loan Portfolio and the Impact of Credit Card Securitizations

                  Securitization

     A major source of our funding is the securitization of credit card loans.
Securitization requires us to remove credit card loans sold with limited
recourse from the consolidated balance sheet. The securitization and sale of
credit card loans changes our interest in the loans from lender to servicer,
with a corresponding change in how we report revenues and expenses in our
statements of income. For securitized credit card loans, amounts that we
otherwise would have recorded as net interest income, fee income and provision
for loan losses are instead reported in other operating income as net
securitization and credit card servicing income.

                  Managed Loan Portfolio

     We analyze our financial performance on a managed loan portfolio basis. To
do so, we adjust the income statement and balance sheet to reverse the effects
of securitization. Our discussion of revenues, where applicable, and provision
for loan losses include comparisons to amounts reported in our consolidated
statements of income ("owned basis"), as well as on a managed basis.

     Our managed loan portfolio is comprised of credit card loans, retained
interests in loans securitized and the investors' share of securitized credit
card loans. The investors' interests in securitized credit card loans is not an
asset of the Company. Therefore, we do not show it on our consolidated balance
sheets. The following tables summarize our managed loan portfolio:

<TABLE>
                                                          December 31,
                                                 2000         1999         1998
                                                 ----         ----         ----
<S>                                           <C>          <C>          <C>
(Dollars in thousands)
Year-end balances:
Credit card loans:
  Credit card loans .......................   $1,179,203   $  145,783   $    3,430
  Retained interests in loans securitized .    2,023,681    1,617,226      753,469
  Investors' interests in securitized loans    6,070,224    5,518,313    4,558,143
                                              ----------   ----------   ----------
Total managed loan portfolio ..............   $9,273,108   $7,281,322   $5,315,042
                                              ==========   ==========   ==========
</TABLE>

<TABLE>
                                                       Year Ended December 31,
                                                 2000         1999         1998
                                                 ----         ----         ----
<S>                                           <C>          <C>          <C>
(Dollars in thousands)
Average balances:
Credit card loans:
  Credit card loans .....................     $  614,991   $   20,505   $   52,016
  Retained interests in loans securitized .    1,869,301    1,146,567      544,364
  Investors' interests in securitized loans    5,537,145    4,836,719    3,404,087
                                              ----------   ----------   ----------
Total managed loan portfolio ..............   $8,021,437   $6,003,791   $4,000,467
                                              ==========   ==========   ==========
</TABLE>






                                       29
<PAGE>
Impact of Credit Card Securitizations

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

<TABLE>
                                                            Year Ended December 31,

(Dollars in thousands)                             2000            1999            1998
                                                   ----            ----            ----
<S>                                            <C>             <C>             <C>
Statements of Income (owned basis):
   Net interest income .....................   $   371,772     $   180,328     $    82,698
   Provision for loan losses ...............       388,234         174,800          77,770
   Other operating income ..................       933,787         623,772         315,480
   Other operating expense .................       594,414         437,984         227,160
                                               -----------     -----------     -----------
   Income before income taxes, extraordinary
     loss and cumulative effect of
     accounting change......................   $   322,911     $   191,316     $    93,248
                                               ===========     ===========     ===========
Adjustments for Securitizations:
   Net interest income .....................   $   703,103     $   647,918     $   423,114
   Provision for loan losses ...............       529,671         567,737         456,354
   Other operating income ..................      (173,432)        (80,181)         33,240
   Other operating expense .................            --              --              --
                                               -----------     -----------     -----------
   Income before income taxes, extraordinary
     loss and cumulative effect of
     accounting change .....................   $        --     $        --     $        --
                                               ===========     ===========     ===========
Statements of Income (managed basis):
   Net interest income .....................   $ 1,074,875     $   828,246     $   505,812
   Provision for loan losses ...............       917,905         742,537         534,124
   Other operating income ..................       760,355         543,591         348,720
   Other operating expense .................       594,414         437,984         227,160
                                               -----------     -----------     -----------
   Income before income taxes, extraordinary
      loss and cumulative effect of
      accounting change ....................   $   322,911     $   191,316     $    93,248
                                               ===========     ===========     ===========

Other Data:
Owned Basis:
   Average interest-earning assets .........   $ 2,707,769     $ 1,303,528     $   636,133
   Return on average assets (1) ............           6.9%            8.0%            7.4%
   Return on average total equity (1) ......          25.7%           21.3%           26.1%
   Net interest margin (2) .................          13.7%           13.8%           13.0%
Managed Basis:
   Average interest-earning assets .........   $ 8,244,914     $ 6,140,247     $ 4,040,220
   Return on average assets (1) ............           2.3%            1.8%            1.4%
   Return on average total equity (1) ......          25.7%           21.3%           26.1%
   Net interest margin (2) .................          13.0%           13.5%           12.5%
</TABLE>

(1) 1999 presented before extraordinary loss.

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






                                       30
<PAGE>
         Risk Based Pricing

     We price credit card offers based on a prospect's risk profile prior to
solicitation or upon receipt of a completed application. We evaluate a prospect
to determine credit needs, credit risk, and existing credit availability and
then develop a customized offer that includes the most appropriate product,
brand, pricing and credit line. After customers open credit card accounts, we
periodically monitor customers' internal and external credit performance and
periodically recalculate behavior, revenue, attrition and bankruptcy predictors.
We re-evaluate customers' risk profiles on a regular basis, and the lending
relationship can evolve to include more competitive (or more restrictive)
pricing and product configurations. In our analyses, we consider the overall
profitability of accounts, using both credit information and the profitability
from selling enhancement services to the customers.

Net Interest Income

     Net interest income consists primarily of interest earned on our credit
card loans, less interest expense on borrowings to fund the loans. Managed net
interest income for the year ended December 31, 2000, was $1.1 billion compared
to $0.8 billion in 1999, an increase of $246.6 million. This increase was
primarily due to a $2.0 billion increase in average managed loans over the
comparable period in 1999, partially offset by a reduction in net interest
margins. The net interest margin on managed interest-earning assets decreased to
13.0% for the year ended December 31, 2000, from 13.5% for the year ended
December 31, 1999. The net interest margin decrease is primarily due to excess
liquidity held during 2000 and our continued repricing to reward good customers
as a retention and usage device. The net interest margin on an owned basis
decreased to 13.7% for the year ended December 31, 2000, from 13.8% in 1999.

















                                       31
<PAGE>


Analysis of Average Balances, Interest and Average Yields and Rates

     The following table provides an analysis of interest income and expense,
net interest spread, net interest margin and average balance sheet data for the
years ended December 31, 2000, 1999 and 1998:

<TABLE>
                                                                         Year Ended December 31,

                                                ------------------------------------------------------------------------
                                                                 2000                                  1999
                                                                 ----                                  ----
(Dollars in thousands)                          Average                    Yield/     Average                     Yield/
                                                Balance        Interest    Rate       Balance        Interest      Rate
                                                -------        --------    ----       -------        --------      ----
<S>                                           <C>            <C>             <C>    <C>            <C>             <C>
Owned Basis
Assets:
Interest-earning assets:
Federal funds sold ........................   $   144,780    $     9,139     6.3%   $    90,748    $     4,477     4.9%
Short-term investments ....................        78,697          4,710     6.0%        45,708          2,298     5.0%
Credit card loans and
    retained interests in
    loans securitized .....................     2,484,292        490,929    19.8%     1,167,072        229,394    19.7%
                                              -----------    -----------     ---    -----------    -----------
Total interest-earning assets .............   $ 2,707,769    $   504,778    18.6%   $ 1,303,528    $   236,169    18.1%
Other assets ..............................       814,053             --      --        651,227             --      --
Allowance for loan losses .................      (695,169)            --      --       (505,458)            --      --
                                              -----------                           -----------
Total assets ..............................   $ 2,826,653             --      --    $ 1,449,297             --      --
                                              ===========                           ===========
Liabilities and Equity:
Interest-bearing liabilities:
Deposits ..................................   $ 1,317,718    $    89,560     6.8%   $   328,035    $    19,329     5.9%
Debt ......................................       354,204         43,446    12.3%       323,260         36,512    11.3%
                                              -----------    -----------     ---    -----------    -----------
Total interest-bearing liabilities.........   $ 1,671,922    $   133,006     7.9%   $   651,295    $    55,841     8.6%
Other liabilities .........................       395,098             --      --        255,952             --      --
                                              -----------                           -----------
Total liabilities .........................     2,067,020             --      --        907,247             --      --
Stockholders' equity ......................       759,633             --      --        542,050             --      --
                                              -----------                           -----------
Total liabilities and equity ..............   $ 2,826,653             --      --    $ 1,449,297             --      --
                                              ===========                           ===========

Net interest income and interest margin (1)            --    $   371,772    13.7%            --    $   180,328    13.8%
Net interest rate spread (2) ..............            --             --    10.7%            --             --     9.5%

Managed Basis

Credit card loans .........................   $ 8,021,437    $ 1,582,503    19.7%   $ 6,003,791    $ 1,156,888    19.3%
Total interest-earning assets .............     8,244,914      1,596,352    19.3%     6,140,247      1,163,663    19.0%
Total interest-bearing liabilities.........     7,209,068        521,477     7.2%     5,488,015        335,417     6.1%
Net interest income and interest margin (1)            --      1,074,875    13.0%            --        828,246    13.5%
Net interest rate spread (2) ..............            --             --    12.1%            --             --    12.9%
</TABLE>

(1) We compute net interest margin by dividing net interest income by
    average total interest-earning assets.

(2) The net interest rate spread is the yield on average interest-earning
    assets minus the funding rate on average interest-bearing liabilities.









<PAGE>


Analysis of Average Balances, Interest and Average Yields and Rates (continued)

                                             Year Ended December 31,

                                     ------------------------------------
                                                      1998

(Dollars in thousands)                 Average                    Yield/
                                       Balance        Interest     Rate
                                       -------        --------     ----
Owned Basis
Assets:
Interest-earning assets:

Federal funds sold ...............   $    20,190    $     1,065     5.3%
Short-term investments ...........        19,563          1,028     5.3%
Credit card loans and retained
   interests in loans
   securitized ......................    596,380        111,118    18.6%
                                     -----------    -----------
Total interest-earning assets ....   $   636,133    $   113,211    17.8%
Other assets .....................       423,278             --      --
Allowance for loan losses ........      (285,244)            --      --
                                     -----------
Total assets .....................   $   774,167             --      --
                                     ===========
Liabilities and Equity:
Interest-bearing liabilities:
Deposits .........................   $        --    $        --      --
Debt .............................       284,038         30,513    10.7%
                                     -----------    -----------
Total interest-bearing liabilities   $   284,038    $    30,513    10.7%
Other liabilities ................       270,294             --      --
                                     -----------
Total liabilities ................       554,332             --      --
Stockholders' equity .............       219,835             --      --
                                     -----------
Total liabilities and equity .....   $   774,167             --      --
                                     ===========
Net interest income and interest
   margin (1) ....................            --    $    82,698    13.0%
Net interest rate spread (2) .....            --             --     7.1%

Managed Basis

Credit card loans ................   $ 4,000,467    $   738,675    18.5%
Total interest-earnings assets ...     4,040,220        740,768    18.3%
Total interest-bearing
   liabilities....................     3,719,960        234,956     6.3%
Net interest income and
    interest margin (1) ..........            --        505,812    12.5%
Net interest rate spread (2) .....            --             --    12.0%

(1)  We compute net interest margin by dividing net interest income by average
     total interest-earning assets.

(2)  The net interest rate spread is the yield on average interest-earning
     assets minus the funding rate on average interest-bearing liabilities.







                                       32
<PAGE>


Interest Variance Analysis

     Net interest income is affected by changes in the average interest rate
earned on interest-earning assets and the average interest rate paid on
interest-bearing liabilities, in addition to changes in the volume of
interest-earning assets and interest-bearing liabilities. The following table
presents the effects of changes in average volume and interest rates on
individual financial statement line items on an owned basis:

<TABLE>

                                          Year Ended December 31,              Year Ended December 31,
                                               2000 vs. 1999                      1999 vs. 1998
                                      ---------------------------------------------------------------------

                                               Change due to*                      Change due to*
(Dollars in thousands)               Increase     Volume       Rate       Increase    Volume        Rate
                                     --------     ------       ----       --------    ------        ----
<S>                                 <C>         <C>         <C>          <C>         <C>         <C>
Interest Income:
Federal funds sold ..............   $   4,662   $   3,173   $   1,489    $   3,412   $   3,476   $     (64)
Short-term investments ..........       2,412       1,909         503        1,270       1,313         (43)
Credit card loans and retained
   interests in loans securitized     261,535     260,294       1,241      118,276     111,855       6,421
                                    ---------   ---------   ---------    ---------   ---------   ---------
Total interest income ...........     268,609     262,776       5,833      122,958     120,288       2,670
Deposit interest
   expense ......................      70,231      66,832       3,399       19,329      19,329        --
Other interest expense ..........       6,934       3,653       3,281        5,999       4,371       1,628
                                    ---------   ---------   ---------    ---------   ---------   ---------
Total interest expense ..........      77,165      80,927      (3,762)      25,328      30,015      (4,687)
                                    ---------   ---------   ---------    ---------   ---------   ---------
Net interest income .............   $ 191,444   $ 181,849   $   9,595    $  97,630   $  90,273   $   7,357
                                    =========   =========   =========    =========   =========   =========
</TABLE>

* The change in interest due to both volume and rates has been allocated in
proportion to the relationship of the absolute dollar amounts of the change in
each. We calculate changes in income and expense independently for each caption
in the analysis. The totals for the volume and rate columns are not the sum of
the individual lines.

Other Operating Income

     Other operating income contributes substantially to our results of
operations, representing 65% and 73% of owned revenues for the years ended
December 31, 2000 and 1999, respectively. Enhancement services revenues,
particularly from debt waiver products, provide a significant percentage of
other operating income. We expect debt waiver products and other enhancement
services revenues to increase with growth in credit card accounts and as we
continue to offer enhancement services to our customer base and to customers of
third parties.

     Other operating income increased $310.0 million for the year ended December
31, 2000, over 1999, primarily due to income generated from the growth in the
number of credit card accounts and amount of card activity and from increases in
active enhancement members. Net securitization and credit card servicing income
increased $125.4 million or 39% over 1999 due to an increase in average
securitized receivables of $0.7 billion, a reduction in the provision for loan
losses on securitized receivables due to better than expected loan loss
experience and increased interchange as overall credit card charge volume
increased to approximately $8.1 billion in 2000 from $5.7 billion in 1999.
Credit card fees and other credit card income increased over 1999 due to the
growth in number of accounts and receivables generating annual fees, cash
advance revenue and late and overlimit fee revenue. Enhancement services
revenues increased 52% to $266.2 million due to the successful results of our
increased marketing efforts of our existing products and services to our
customers and customer of third parties. We have also successfully developed new
products during 2000 and have added additional third parties to whom we market
our products. We generated 4.8 million new enhancement service relationships in
2000, resulting in a 24% increase in active members during the year.
Specifically, debt waiver product revenue increased by $38.7 million to $144.7
million for the year ended December 31, 2000, as we continued to add new credit
card customers with debt waiver protection.





                                       33
<PAGE>
Other Operating Expense

     Total other operating expenses for the year ended December 31, 2000,
increased $156.4 million over 1999, largely due to costs associated with the
growth of our business activities. Employee compensation increased $56.2 million
for the year ended December 31, 2000, due to a 35% increase in employees to
support the increase in credit card accounts and enhancement services active
memberships. Other expenses increased $48.9 million for the year as a result of
the addition of new facilities and equipment to support the growth in the number
of employees during the year. Data processing services and communications
expenses increased $20.2 million, largely due to the growth in credit card
accounts, transaction volumes and loan balances.

Income Taxes

     Our provision for income taxes includes both federal and state income
taxes. Applicable income tax expense was $124.3 million, $76.0 million and $35.9
million for the years ended December 31, 2000, 1999 and 1998, respectively. This
tax expense represents an effective tax rate of 38.5%, 39.7% and 38.5% for the
years ended December 31, 2000, 1999 and 1998, respectively. The increase in 1999
was due to the conversion of the Series B Perpetual Convertible Preferred Stock
and 12% Senior Notes to the Series C Perpetual Convertible Preferred Stock and
the cancellation of warrants.

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
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 December 31, 2000, 48% of our managed accounts and 30% of
our loans were less than 24 months old.

     For the year ended December 31, 2000, our net charge-off ratio was 9.7%,
compared to 9.0% for the year ended December 31, 1999. Without the impact of
purchase accounting related to acquired portfolios, the charge-off rate was 9.9%
and 10.4% for the years ended December 31, 2000 and 1999, respectively. Our
charge-offs without the impact of purchase accounting have been stable, with
losses between 9.5% and 11.0% for the last eight quarters.

     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 or upon receipt of a completed
application and generally result in lower credit lines than the industry
average. 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. We 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 are also costly in terms of the personnel and other
resources dedicated to their resolution. We monitor delinquency levels on a
managed basis, since delinquency on either an owned or managed basis subjects us
to credit loss exposure. A credit card account is contractually delinquent if we
do not receive the minimum payment by the specified date on the cardholder's
statement. It is our policy to continue to accrue interest and fee income on all
credit card accounts, except in limited circumstances, until we charge off the
account and all related loans, interest and other fees.







                                       34
<PAGE>
     The following table presents the delinquency trends of our credit card loan
portfolio on a managed portfolio basis:

<TABLE>
Managed Loan Delinquency
<S>                   <C>            <C>    <C>           <C>     <C>            <C>
                      December 31,   % of   December 31,  % of    December 31,   % of
                         2000       Total      1999       Total       1998       Total
                      ------------  -----   ------------  -----   ------------   -----
(Dollars in thousands)

Managed loan ......   $9,273,108     100%   $7,281,322     100%   $5,315,042     100%
   portfolio
Loans contractually
   delinquent:
   30 to 59 days ..      228,238     2.5%      168,882     2.3%      113,449     2.1%
   60 to 89 days ..      173,531     1.9%      117,740     1.6%       75,049     1.4%
   90 or more days       365,963     3.9%      270,092     3.7%      173,812     3.3%
                      ----------   -----    ----------   -----    ----------   -----
      Total .......   $  767,732     8.3%   $  556,714     7.6%   $  362,310     6.8%
                      ==========   =====    ==========   =====    ==========   =====
</TABLE>

     The increase in the managed delinquency rates over 1999 reflects a slight
deterioration in the economy and increased delinquencies in our secured card
portfolio. Without the impact of purchase accounting related to acquired
portfolios, delinquency rates would have been 8.3%, 7.8% and 7.4%, respectively.
We intend to continue to focus our resources on our collection efforts to
minimize the negative impact to net loan losses that results from increased
delinquency levels.

         Net charge-offs

     Net charge-offs include the principal amount of losses from cardholders
unwilling or unable to pay their loan balances, as well as bankrupt and deceased
cardholders, less current period recoveries. Net charge-offs exclude accrued
finance charges and fees, which are charged against the related income at the
time of charge-off. During the quarter ended March 31, 2000, we changed our
policy for secured card accounts to charge off accounts 120 days contractually
delinquent. Prior to the first quarter our charge-off policy for secured card
accounts was the same as our overall charge-off policy, which is to charge off
accounts 180 days contractually delinquent. This change was made based on our
experience that secured card customers who are 120 days delinquent more closely
resemble recovery accounts.

     The following table presents our net charge-offs for the periods indicated
as reported in the consolidated financial statements and on a managed portfolio
basis:

                                                 Year Ended December 31,

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

                                            2000          1999          1998
                                            ----          ----          ----

(Dollars in thousands)

Owned Basis:
     Average loans and retained
         interests in loans securitized
         outstanding ..................  $2,484,292    $1,167,072    $  596,380
     Net charge-offs ..................     250,296        96,102        58,793
     Net charge-offs as a percentage of
         average loans outstanding ....        10.1%          8.2%          9.9%
                                         ==========    ==========    ==========

Managed Basis:

     Average loans outstanding ........  $8,021,437    $6,003,791    $4,000,467
     Net charge-offs ..................     778,921       543,085       405,077
     Net charge-offs as a percentage of
         average loans outstanding ....         9.7%          9.0%         10.1%
                                         ==========    ==========    ==========





                                       35
<PAGE>
         Provision and allowance for loan losses

     We maintain an allowance for loan losses for both owned loans and the
retained interests in loans securitized. The portion allocated to the retained
interest in loans securitized represents our estimate of a valuation adjustment
to report this asset in accordance with SFAS 125. For securitized loans,
anticipated losses and related provisions for loan losses are reflected in the
calculations of net securitization and credit card servicing income. We make
provisions for loan losses in amounts necessary to maintain the allowance at a
level estimated to be sufficient to absorb probable future losses of principal
and earned interest, net of recoveries, inherent in the existing loan portfolio.

     The provision for loan losses on a managed basis for the year ended
December 31, 2000, totaled $917.9 million compared to a provision of $742.5
million in 1999. The increase in the provision for loan losses in 2000 compared
to 1999 reflects an increase in the managed charge-off ratio to 9.7 percent in
2000 versus 9.0 percent in 1999 and a 34% increase in the average managed loan
portfolio. The increase in the managed charge-off ratio in 2000 reflects a
slight deterioration in the economy and increased charge-offs in our secured
card portfolio.

Analysis of Allowance for Loan Losses

     The following table presents the change in our allowance for loan losses
and other ratios on a managed portfolio basis for the periods presented:

<TABLE>
                                                                   Year Ended December 31,
                                                           -------------------------------------
(Dollars in thousands)                                        2000          1999          1998
                                                              ----          ----          ----
Managed Basis:
<S>                                                        <C>           <C>           <C>
Balance at beginning of year ...........................   $ 619,028     $ 393,283     $ 244,084
Allowance related to assets acquired, net ..............       5,963        26,293        20,152
Provision for loan losses ..............................     917,905       742,537       534,124
Loans charged off ......................................    (854,087)     (582,637)     (420,875)
Recoveries .............................................      75,166        39,552        15,798
                                                           ---------     ---------     ---------
Net loans charged off ..................................    (778,921)     (543,085)     (405,077)
                                                           ---------     ---------     ---------
Balance at end of year .................................   $ 763,975     $ 619,028     $ 393,283
                                                           =========     =========     =========

Ending allowance as a percent of loans .................         8.2%          8.5%          7.4%
Ending allowance as a percent of 30-day
   plus receivables.....................................         100%          111%          109%
</TABLE>


     The reduction in the allowance as a percentage of loans and as a percentage
of 30-day plus receivables reflects improved account analysis and management. We
believe the allowance for loan losses is adequate to cover probable losses
inherent in the loan portfolio under current conditions. However, there can be
no assurance as to the future credit losses that may be incurred in connection
with our loan portfolio, nor can there be any assurance that the loan loss
allowance that has been established will be sufficient to absorb such expected
loan losses. We continually monitor the allowance for loan losses and make
additional provisions to the allowance as we deem appropriate.









                                       36
<PAGE>
Derivative Activities
---------------------

     We use derivative financial instruments for the purpose of managing our
exposure to interest rate risks. We have a number of procedures in place to
monitor and control both market and credit risk from these derivative
activities. Our senior management approves all derivative strategies and
transactions.

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
cardholders.

     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 the London Interbank Offered Rate
("LIBOR"). The $270 million bank credit facility has pricing that is also
indexed to LIBOR or Prime Rate. The subsidiary bank deposits are issued at fixed
interest rates. We have entered into an interest rate swap agreement which
effectively converted $249 million of deposits to rates indexed to LIBOR. The
long-term debt is at fixed interest rates. At December 31, 2000, approximately
11.9% 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, 88.1%
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 used by management to quantify interest rate risk is a
sensitivity analysis, which management believes 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 no counteractive measures by management, a 200 basis point increase in
interest rates affecting our floating rate financial instruments, including both
debt obligations and loans, will result in an increase in net income of
approximately $47.0 million relative to a base case over the next 12 months;
while a decrease of 200 basis points will result in a reduction in net income of
approximately $47.0 million. Our use of this methodology to quantify the market
risk of financial instruments should not be construed as an endorsement of its
accuracy or the accuracy of the related assumptions. In addition, this
methodology does not take into account the indirect impact interest rates may
have on the payment performance of our cardholders. The quantitative information
about market risk is necessarily limited because it does not take into account
operating transactions or other costs associated with managing immediate changes
in interest rates.








                                       37
<PAGE>



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. Because the
pricing and maturity characteristics of our assets and liabilities change,
liquidity management is a dynamic process, affected by changes in short- and
long-term interest rates. We use a variety of financing sources to manage
liquidity, refunding, and interest rate risks.

<TABLE>
                                                                      Year-End Funding Mix*
                                                                        (At December 31,)


                                                               Weighted-                                       Weighted-
                                                                Average                                         Average
                                              2000           Interest Rate                   1999            Interest Rate
                                              ----           -------------                   ----            -------------
<S>                                <C>                               <C>         <C>                                  <C>
Total year-end
     funding..............         $       9.4 billion              7.1%        $         7.3 billion                6.1%

Bank loans................                     1.0%                 9.4%                     1.4%                    7.8%
Bank conduit
   securitizations........                     2.3%                 7.6%                    10.3%                    6.7%
Long-term debt............                     2.7%                10.9%                     3.4%                   11.2%
Equity....................                     9.4%                  --                      8.6%                     --
Deposits..................                    22.4%                 6.8%                    10.7%                    5.9%
Metris Master Trust.......                    62.2%                 7.0%                    65.6%                    5.8%
                                   ----------------                              ----------------
                                             100.0%                                        100.0%
                                   ================                              ================


                                           (*Chart replaces graph in 2000 Annual Report.)
</TABLE>

     We finance the growth of our credit card loan portfolio through cash flows
from operations, asset securitizations, bank loans, subsidiary bank deposits,
long-term debt and equity issuances.

     During 2000 and 1999, we had net proceeds of approximately $552.0 million
and $960.2 million, respectively, from sales of credit card loans to the trust
and conduits. We used cash generated from these transactions to reduce
borrowings and to fund credit card loan portfolio growth.

     The following table presents the amounts, at December 31, 2000, of investor
principal in securitized receivables scheduled to amortize in future years. We
base the amortization amounts on estimated amortization periods, which are
subject to change based on the trust and conduit performance.

(Dollars in millions)
2001                                                      $1,121
2002                                                       1,949
2003                                                         600
2004                                                         500
2005                                                       1,400
Thereafter                                                   500
                                                          ------
Total securitized loans at December 31, 2000              $6,070
                                                          ======

     Direct Merchants Bank issues certificates of deposit of $100,000 or more.
As of December 31, 2000 and 1999, $2.1 billion and $0.8 billion of CDs were
outstanding with original maturities ranging from three months to five years and
three months to three years, respectively. These CDs pay fixed interest rates
ranging from 5.4% to 7.6% and 5.2% to 6.6% at December 31, 2000 and 1999,
respectively.





                                       38
<PAGE>
     We have a $170 million, three-year revolving credit facility and a $100
million five-year term loan. At December 31, 2000 and 1999, we were in
compliance with all financial covenants under these agreements. At December 31,
2000 and 1999, we had outstanding borrowings of $100 million under the term loan
facility. We have also issued and sold $150 million of 10.125% Senior Notes due
2006 and $100 million of 10% Senior Notes due 2004.

     The Company has $360.4 million of Series C Perpetual Convertible Preferred
Stock outstanding which is held by affiliates of the Thomas H. Lee Company, a
private equity firm, and is convertible into common shares at a conversion price
of $12.42 per common share subject to adjustment in certain circumstances. The
Series C Preferred Stock has a 9% dividend payable in additional shares of
Series C Preferred Stock and will also receive any cash dividends paid on the
Company's common stock on a converted basis. One share of Series C Preferred
Stock is convertible into 30 shares of common stock, plus a premium amount
designed to guarantee a portion of seven years' worth of dividends at a 9%
annual rate. For conversions in 2000, the premium amount would be equal to
approximately 14% of those future dividends. Assuming conversion of the Series C
Preferred Stock into common stock, the Lee Company would own approximately 32%
of the Company on a diluted basis at December 31, 2000. The Series C Preferred
Stock entitles the holders to elect four members to our Board of Directors. The
Series C Preferred may be redeemed by us in certain circumstances after December
31, 2001, by paying 103% of the redemption price of $372.50 and any accrued
dividends at the time of redemption. We also have the option to redeem the
Series C Preferred Stock after December 9, 2008, without restriction by paying
the redemption price of $372.50 and any accrued dividends at the time of
redemption.

     The Federal Reserve Act imposes various legal limitations on the extent to
which banks that are members of the Federal Reserve System can finance or
otherwise supply funds to certain of their affiliates. In particular, Direct
Merchants Bank is subject to certain restrictions on any extensions of credit to
us or our subsidiaries. Additionally, Direct Merchants Bank is limited in its
ability to declare dividends to us or its subsidiaries. Therefore, Direct
Merchants Bank's investments in federal funds sold are generally not available
for the general liquidity needs of the Company or its subsidiaries. These
restrictions were not material to our operations at December 31, 2000 and 1999.

     As the portfolio of credit card loans grows, or as the trust and conduit
securitization fundings amortize, our funding needs will increase accordingly.
We believe that our cash flows from operations, asset securitizations, bank
loans, subsidiary bank deposits, long-term debt and equity issuances will
provide us with adequate liquidity for meeting anticipated cash needs, although
no assurance can be given to that effect.

Capital Adequacy

     Direct Merchants Bank is subject to certain capital adequacy guidelines
adopted by the Office of the Comptroller of the Currency (the "OCC"), its
primary regulator. At December 31, 2000 and 1999, Direct Merchants Bank exceeded
the minimum required capital levels and was considered a "well-capitalized"
depository institution under regulations of the OCC.

Newly Issued Pronouncements

     In September 2000, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
which replaces SFAS No. 125. This standard revises the accounting for
securitizations and other transfers of financial assets and collateral and
requires certain disclosures. The statement is effective for recognition and
reclassification of collateral and for disclosures related to securitization
transactions and collateral for fiscal years ending after December 15, 2000. We
have revised the disclosures in our annual report to comply with the new
standard and are evaluating the financial impact the adoption of the accounting
portion of the new standard will have on our financial statements.

     The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," and subsequent amendments No. 137 and No.
138, which establish accounting and reporting standards for derivative
instruments. They require enterprises to recognize all derivatives as either
assets or liabilities in the statement of financial position and to measure
those instruments at fair value. These statements are effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. As a result of the
adoption of FAS 133 effective



                                       39
<PAGE>
January 1, 2001, the Company estimates it will recognize a one-time,
non-cash pre-tax charge to earnings of approximately $23 million. This one-time
charge will be reflected as a cumulative effect of accounting change in the
first quarter of 2001.

Forward-Looking Statements

     This annual 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 our limited operating history
as a stand alone entity, our limited experience in originating and servicing
credit card accounts, higher default and bankruptcy rates of our target market
of moderate-income consumers, interest rate risks, risks associated with
acquired portfolios, dependence on the securitization markets, state and federal
laws and regulations, and general economic conditions that can have a major
impact on the performance of loans. 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, 2000. 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, 2000, 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.

Year Ended December 31, 1999, Compared to Year Ended December 31, 1998

     Net loss applicable to common stockholders for the year ended December 31,
1999, was a loss of $61.6 million, or $1.07 per share, down from net income
applicable to common stockholders of $56.2 million, or $0.94 per share for 1998.
Net loss applicable to common stockholders for the year ended December 31, 1999,
included a $152.4 million one-time, non-cash accounting impact from the issuance
of the Series C Perpetual Convertible Preferred Stock, extinguishing the Series
B Preferred Stock, the 12% Senior Notes, and the ten-year warrants reported in
the second quarter 1999. Income before extraordinary items for the year ended
December 31, 1999, was $115.4 million, or $1.41 per share, an increase of 101%
over net income of $57.3 million or $0.94 per share for 1998. The increase in
income before extraordinary items results from an increase in net interest
income and other operating income partially offset by increases in the provision
for loan losses and other operating expenses. These increases are largely
attributable to the growth in average managed loans and active enhancement
services members. Average managed loans increased to $6.0 billion for the year
ended December 31, 1999, from $4.0 billion for the same period in 1998, an
increase of 50% and active enhancement services members grew to 4.9 million from
3.6 million in 1998. In addition, credit card charge volume was approximately
$5.7 billion for the full year 1999, a 48% increase over the same period in
1998.

     The provision for loan losses on a managed basis was $742.5 million in
1999, compared to $534.1 million in 1998. The increase primarily reflects higher
credit card loan balances and the addition of new credit card portfolios as well
as an increase in net charge-offs. The managed net charge-off rate was 9.0% in
1999 compared to 10.1% in 1998. Before the impact of purchase accounting related
to portfolio acquisitions the charge-off ratio for the year ended December 31,
1999, was 10.4% compared to 10.8% for the year ended December 31, 1998.

     Other operating income increased $308.3 million for the year ended December
31, 1999, over 1998, primarily due to income generated from the growth in
average securitized credit card loans. On a managed basis, other operating
income increased $194.9 million to $543.6 million, primarily due to credit card
fees, interchange fees and other credit card income, which increased to $382.2
million for 1999, up 52% over $251.2 million for 1998. Additionally,

                                       40
<PAGE>

enhancement services revenues increased 60% to $175.1 million because of
our marketing efforts to sell other products and services to our customers and
customers of third parties. Specifically, debt waiver product revenue increased
by $32.2 million to $106.0 million for the year ended December 31, 1999, as we
continued to add new credit card customers with debt waiver protection. In
addition, interchange revenue increased over the prior year due to credit card
charge volume increasing to approximately $5.7 billion in 1999 from
approximately $3.9 billion in 1998.

     Total other operating expenses for the year ended December 31, 1999,
increased $210.8 million over 1998, largely due to costs associated with the
continued growth of our business activities. Credit card account and other
product solicitation and marketing expenses increased $64.3 million over 1998,
largely due to the increases in credit card marketing expenses to generate new
accounts and retain existing profitable accounts and due to enhancement services
marketing activity for new and existing programs during 1999. Employee
compensation increased $59.8 million for the year ended December 31, 1999, due
to increased staffing needs to support the increase in credit card accounts and
enhancement services active member growth. Other expenses increased $33.9
million for the full year 1999 due to increases in general expenses to support
the growth in credit card accounts and enhancement services members. Our
operating effectiveness as measured by the our managed operating efficiency
ratio increased to 31.9% in 1999 from 26.6% in 1998, due to the investment in
infrastructure and marketing programs.

     Managed net interest income for the year ended December 31, 1999, was
$828.2 million compared to $505.8 million for the same period in 1998, an
increase of $322.4 million. This increase was primarily due to a $2.0 billion
increase in average managed loans over the comparable period in 1998. The
average net yield on managed interest-earning assets increased to 13.5% for the
year ended December 31, 1999, from 12.5% for the year ended December 31, 1998.
The net interest margin increased compared to 1998, primarily due to a repricing
of accounts that occurred late in 1998 that had a positive impact on 1999. The
average yield on interest-earning assets on an owned basis increased to 13.8%
for the year ended December 31, 1999, from 13.0% for the same period in 1998.














                                       41
<PAGE>
            MANAGEMENT'S REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
                              AND INTERNAL CONTROL

     The accompanying consolidated financial statements, related financial data,
and other information in this annual report were prepared by the management of
Metris Companies Inc. Management is responsible for the integrity and
objectivity of the data presented, including amounts that must necessarily be
based on judgments and estimates. The consolidated financial statements were
prepared in conformity with accounting principles generally accepted in the
United States of America.

     Management of Metris Companies Inc. depends on its accounting systems and
internal control structures in meeting its responsibilities for reliable
consolidated financial statements. In management's opinion, these systems and
structures provide reasonable assurance that assets are safeguarded and that
transactions are properly recorded and executed in accordance with management's
authorizations. As an integral part of these systems and structures, the Company
utilizes a professional staff of internal auditors who conduct operational and
special audits and coordinate audit coverage with Company management and the
independent auditors.

     The consolidated financial statements have been audited by the Company's
independent auditors, KPMG LLP, whose independent professional opinion appears
separately. Their opinion on the consolidated financial statements is based on
auditing procedures that include performing selected tests of transactions and
records as they deem appropriate. These auditing procedures are designed to
provide reasonable assurance that the consolidated financial statements are free
of material misstatement.

     The Audit Committee of the Board of Directors, composed solely of outside
directors, meets periodically with the internal auditors, the independent
auditors and management to review the work of each and ensure that each is
properly discharging its responsibilities. The internal and independent auditors
have free access to the Committee to discuss the results of their audit work and
their findings.

Ronald N. Zebeck                                     David D. Wesselink
Chairman and                                         Vice Chairman
Chief Executive Officer



















                                       42
<PAGE>



INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Metris Companies Inc.:

     We have audited the accompanying consolidated balance sheets of Metris
Companies Inc. and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the years in the three-year period ended December 31,
2000. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Metris
Companies Inc. and subsidiaries as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.

     As discussed in Note 2 to the consolidated financial statements, the
Company changed its method of recognizing revenue for its debt waiver products
in 2000.


KPMG LLP
Minneapolis, Minnesota
January 17, 2001






















                                       43

<PAGE>

<TABLE>

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


                                                                                   December 31,

                                                                               2000          1999
                                                                               ----          ----
<S>                                                                        <C>           <C>
Assets:
Cash and due from banks ................................................   $    84,938   $    28,505
Federal funds sold .....................................................       367,937       118,962
Short-term investments .................................................        68,565        46,966
                                                                           -----------   -----------
Cash and cash equivalents ..............................................       521,440       194,433
                                                                           -----------   -----------
Retained interests in loans securitized ................................     2,023,681     1,617,226
Less: Allowance for loan losses ........................................       640,852       606,853
                                                                           -----------   -----------
Net retained interests in loans securitized ............................     1,382,829     1,010,373
                                                                           -----------   -----------
Credit card loans (net of allowance for loan losses of $123,123 and
      $12,175, respectively)............................................     1,056,080       133,608
Property and equipment, net ............................................       128,395        56,914
Deferred income taxes ..................................................       146,345       185,613
Purchased portfolio premium ............................................        95,537        83,809
Other receivables due from credit card securitizations, net.............       186,694       243,978
Other assets ...........................................................       218,705       136,354
                                                                           -----------   -----------
      Total assets .....................................................   $ 3,736,025   $ 2,045,082
                                                                           ===========   ===========

Liabilities:

Deposits ...............................................................   $ 2,106,199   $   775,381
Debt ...................................................................       356,066       345,012
Accounts payable .......................................................        83,473        45,850
Deferred income ........................................................       235,507       171,666
Accrued expenses and other liabilities .................................        71,227        83,372
                                                                           -----------   -----------
   Total liabilities ...................................................     2,852,472     1,421,281
                                                                           -----------   -----------
Stockholders' Equity:

Convertible  preferred  stock - Series C, par value $.01 per  share;
   10,000,000 shares authorized, 967,573 and 885,178 shares issued
   and  outstanding, respectively.......................................       360,421       329,729
Common  stock,  par  value $.01 per  share; 100,000,000 shares
   authorized, 62,242,787 and 57,919,433 shares issued and
   outstanding, respectively............................................           622           386
Paid-in capital ........................................................       198,077       130,772
Retained earnings ......................................................       324,433       162,914
                                                                           -----------   -----------
   Total stockholders' equity ..........................................       883,553       623,801
                                                                           -----------   -----------
   Total liabilities and stockholders' equity ..........................   $ 3,736,025   $ 2,045,082
                                                                           ===========   ===========

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









                                       44
<PAGE>

<TABLE>

                             METRIS COMPANIES INC. AND SUBSIDIARIES
                               Consolidated Statements of Income
                          (Dollars in thousands, except per-share data)

                                                              Year Ended December 31,
                                                              -----------------------
                                                          2000         1999         1998
<S>                                                    <C>          <C>          <C>
Interest Income:
Credit card loans and retained
     interests in loans securitized ................   $ 490,929    $ 229,394    $ 111,118
Federal funds sold .................................       9,139        4,477        1,065
Other ..............................................       4,710        2,298        1,028
                                                       ---------    ---------    ---------
Total interest income ..............................     504,778      236,169      113,211
                                                       ---------    ---------    ---------
Deposit interest expense ...........................      89,560       19,329         --
Other interest expense .............................      43,446       36,512       30,513
                                                       ---------    ---------    ---------
Total interest expense .............................     133,006       55,841       30,513
                                                       ---------    ---------    ---------
Net Interest Income ................................     371,772      180,328       82,698
Provision for loan losses ..........................     388,234      174,800       77,770
                                                       ---------    ---------    ---------
Net Interest (Loss) Income
      After Provision for Loan Losses ..............     (16,462)       5,528        4,928
                                                       ---------    ---------    ---------
Other Operating Income:
Net securitization and credit card
     servicing income ..............................     444,254      318,873      138,221
Credit card fees, interchange
     and other credit card income ..................     223,333      129,808       68,136
Enhancement services revenues ......................     266,200      175,091      109,123
                                                       ---------    ---------    ---------
                                                         933,787      623,772      315,480
                                                       ---------    ---------    ---------
Other Operating Expense:

Credit card account and other product
     solicitation and marketing expenses............     144,481      107,726       43,471
Employee compensation ..............................     178,592      122,417       62,627
Data processing services and
     communications.................................      86,166       65,970       46,519
Warranty and debt waiver underwriting
      and claims servicing expense .................      26,431       21,091       12,279
Credit card fraud losses ...........................       8,886        7,384        4,436
Purchased portfolio premium
      amortization .................................      19,275       31,752       10,051
Other ..............................................     130,583       81,644       47,777
                                                       ---------    ---------    ---------
                                                         594,414      437,984      227,160
                                                       ---------    ---------    ---------
Income Before Income Taxes,
      Extraordinary Loss and Cumulative
      Effect of Accounting Change ..................     322,911      191,316       93,248
Income taxes .......................................     124,320       75,953       35,900
                                                       ---------    ---------    ---------
Income Before Extraordinary Loss and
      Cumulative Effect of Accounting
      Change .......................................     198,591      115,363       57,348
Extraordinary loss from early
      extinguishment of debt .......................          --       50,808           --
Cumulative effect of accounting change
      (net of income taxes of $2,180) ..............       3,438           --           --
                                                       ---------    ---------    ---------
Net Income .........................................     195,153       64,555       57,348
Preferred stock dividends-Series B .................          --        7,506        1,100
Convertible preferred stock
      dividends-Series C ...........................      31,624       17,080           --
Adjustment for the retirement of Series
      B preferred stock.............................          --      101,615           --
                                                       ---------    ---------    ---------
Net Income (Loss) Applicable to
   Common Stockholders .............................   $ 163,529    $ (61,646)   $  56,248
                                                       =========    =========    =========
</TABLE>






<PAGE>

<TABLE>

<S>                                        <C>           <C>           <C>
Earnings per share:
     Basic-income (loss) before
         extraordinary loss and
         cumulative effect of accounting
         change ........................   $     2.78    $    (0.19)   $     0.97
     Basic-extraordinary loss ..........           --         (0.88)           --
     Basic-cumulative effect of
         accounting change .............        (0.06)           --            --
     Basic-net income (loss) ...........         2.72         (1.07)         0.97
     Diluted-income (loss) before
         extraordinary loss and
         cumulative effect of accounting
         change ........................         2.15         (0.19)         0.94
     Diluted-extraordinary loss ........           --         (0.88)           --
     Diluted-cumulative effect of
         accounting change .............        (0.04)           --            --
     Diluted-net income (loss) .........         2.11         (1.07)         0.94
Shares used to compute earnings
   per share:
Basic ..................................       60,070        57,855        57,696
Diluted ................................       92,582        57,855        59,905

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



















                                     45
<PAGE>
<TABLE>


                                                      METRIS COMPANIES INC. AND SUBSIDIARIES
                                            Consolidated Statements of Changes in Stockholders' Equity
                                                         (Dollars and shares in thousands)



                                                                                                                Total
                                      Number of Shares     Preferred     Common      Paid-In      Retained   Stockholders'
                                     Preferred    Common     Stock        Stock      Capital      Earnings      Equity

<S>                               <C>            <C>      <C>          <C>         <C>          <C>          <C>
BALANCE, DECEMBER 31, 1997 ....          --       57,675   $      --    $     192   $ 107,059    $  68,787    $ 176,038
     Net income ...............          --           --          --           --          --       57,348       57,348
     Issuance of preferred
         stock - Series B .....         537           --     200,000           --          --           --      200,000
     Cash dividends and other..          --           --          --           --          --         (961)        (961)
     Preferred dividends in
         kind - Series B ......           3           --       1,100           --          --       (1,100)          --
     Issuance of common stock
         under employee benefit
         plans ................          --          104          --            1         556           --          557
                                  ---------    ---------   ---------    ---------   ---------    ---------    ---------
BALANCE, DECEMBER 31, 1998 ....         540       57,779   $ 201,100    $     193   $ 107,615    $ 124,074    $ 432,982
                                  =========    =========   =========    =========   =========    =========    =========
     Net income ...............          --           --          --           --          --       64,555       64,555
     Retirement of preferred
         stock - Series B .....        (560)          --    (208,606)          --    (101,615)          --     (310,221)
     Issuance of preferred
         stock - Series C .....         840           --     312,910           --     122,369           --      435,279
     Cash dividends ...........          --           --          --           --          --       (1,390)      (1,390)
     June 1999 two-for-one
         stock split ..........          --           --          --          193        (193)          --           --
     Preferred dividends in
         kind - Series B ......          20           --       7,506           --          --       (7,506)          --
     Preferred dividends in
         kind - Series C ......          45           --      16,819           --          --      (16,819)          --
     Issuance of common
         stock under employee
         benefit plans ........          --          140          --           --       2,596           --        2,596
                                  ---------    ---------   ---------    ---------   ---------    ---------    ---------
BALANCE, DECEMBER 31, 1999 ....         885       57,919   $ 329,729    $     386   $ 130,772    $ 162,914    $ 623,801
                                  =========    =========   =========    =========   =========    =========    =========
     Net income ...............          --           --          --           --          --      195,153      195,153
     Cash dividends ...........          --           --          --           --          --       (2,942)      (2,942)
     June 2000 three-for-
         two stock split ......          --           --          --          201        (201)          --           --
     Preferred dividends in
         kind - Series C ......          83           --      30,692           --          --      (30,692)          --
     Issuance of common stock
         under employee benefit
         plans ................          --        4,324          --           35      67,506           --       67,541
                                  ---------    ---------   ---------    ---------   ---------    ---------    ---------
BALANCE, DECEMBER 31, 2000 ....         968       62,243   $ 360,421    $     622   $ 198,077    $ 324,433    $ 883,553
                                  =========    =========   =========    =========   =========    =========    =========

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







                                       46
<PAGE>

<TABLE>

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

                                                                                                  Year Ended December 31,
                                                                                                  -----------------------
                                                                                      2000          1999          1998
                                                                                      ----          ----          ----
<S>                                                                              <C>            <C>            <C>
Operating Activities:
Net income ...................................................................   $   195,153    $    64,555    $    57,348
Adjustments to reconcile net income to net
   cash provided by operating activities:
Extraordinary loss from early extinguishment of debt..........................            --         50,808             --
Cumulative effect of accounting change .......................................         3,438             --             --
Depreciation and amortization ................................................        76,256         75,341         48,678
Change in allowance for loan losses ..........................................       144,948        225,745        149,199
Changes in operating assets and liabilities, net:
        Deferred income taxes ................................................        39,268        (32,592)       (72,234)
        Other receivables due from credit
             card securitizations, net........................................        47,904        (61,144)      (112,170)
        Accounts payable and accrued expenses ................................        45,877         65,337        (14,553)
        Deferred income ......................................................        60,403         46,774         75,688
        Other ................................................................       (95,563)      (106,940)       (67,044)
                                                                                 -----------    -----------    -----------
Net cash provided by operating activities ....................................       517,684        327,884         64,912
                                                                                 -----------    -----------    -----------
Investing Activities:
Net proceeds from sales and repayments of
     securitized loans .......................................................       551,911        960,170      1,491,832
Net loans originated or collected ............................................    (1,827,192)      (843,274)      (901,740)
Credit card portfolio acquisitions ...........................................      (195,597)    (1,156,673)      (921,558)
Additions to premises and equipment ..........................................       (85,007)       (41,724)       (10,814)
                                                                                 -----------    -----------    -----------
Net cash used in investing activities ........................................    (1,555,885)    (1,081,501)      (342,280)
                                                                                 -----------    -----------    -----------
Financing Activities:
Net increase in debt .........................................................        11,054        134,116         66,896
Net increase in deposits .....................................................     1,330,818        775,381             --
Cash dividends paid ..........................................................        (2,942)        (1,390)          (961)
(Decrease) increase in preferred equity ......................................            --           (124)       200,000
Increase in common equity ....................................................        26,278          2,720            557
                                                                                 -----------    -----------    -----------
Net cash provided by financing activities ....................................     1,365,208        910,703        266,492
                                                                                 -----------    -----------    -----------
Net increase (decrease) in cash and cash equivalents..........................       327,007        157,086        (10,876)
Cash and cash equivalents at beginning of year................................       194,433         37,347         48,223
                                                                                 -----------    -----------    -----------
Cash and cash equivalents at end of year .....................................   $   521,440    $   194,433    $    37,347
                                                                                 ===========    ===========    ===========
Supplemental disclosures and cash flow information:
   Cash paid during the year for:
    Interest .................................................................   $    81,724    $    29,519    $    28,412
    Income taxes .............................................................        75,384        116,954         86,053
Tax benefit from employee stock option exercises..............................        31,174            588             --
Non-cash conversion of Senior Notes:
     Accrued expenses and other liabilities ..................................            --         (4,250)            --
     Debt ....................................................................            --       (100,000)            --
     Metris preferred stock ..................................................            --        104,250             --

                                    See accompanying Notes to Consolidated Financial Statements.

</TABLE>









                                       47
<PAGE>



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

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, N.A. ("Direct Merchants Bank"), which may be referred to as "we,"
"us," "our" and the "Company". The Company is an information-based direct
marketer of consumer lending products and enhancement services primarily to
moderate-income consumers.

     Prior to September 25, 1998, Fingerhut Companies, Inc. owned 83% of the
Company. On September 25, 1998, Fingerhut distributed its remaining shares of
the Company to Fingerhut shareholders in a tax-free distribution (the "spin
off").

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

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 amount of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements as well as the reported amount
of revenues and expenses during the reporting periods. Actual results could
differ from these estimates.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

     The following is a summary of the significant accounting and reporting
policies used in preparing the consolidated financial statements.

Federal Funds Sold and Short-term Investments

     Federal funds sold are short-term loans made to banks through the Federal
Reserve System. It is our policy to make such loans only to banks that are
considered to be in compliance with their regulatory capital requirements.
Short-term investments are investments in money market mutual funds and
commercial paper with maturities less than three months.

Credit Card Loans

     Credit card loans presented on our balance sheet are receivables from
consumers that we have not securitized, and are recorded at the principal amount
outstanding. We accrue and earn interest income on credit card loans based on
the principal amount of the loans outstanding using the effective-yield method.
Accrued interest which has been billed to the customer but not yet received is
classified on the consolidated balance sheet with the related credit card loans.
Accrued interest which has not yet been billed to the customer is estimated and
classified on the consolidated balance sheet in "Other assets." Interest income
is generally recognized until a loan is charged off. At that time, the accrued
interest portion of the charged off balance is deducted from current period
interest income.

 Securitization, Retained Interests in Loans Securitized and Securitization
   Income

     We publicly and privately securitize a significant portion of our credit
card loans to investors through the Metris Master Trust and third-party,
single-seller and multi-seller receivables conduits. We retain participating
interests in the credit card loans under "Retained interests in loans
securitized" on the consolidated balance sheets. Our retained interests in loans
securitized are subordinate to the interests of investors in the trust and
conduit portfolios. Although we continue to service the securitized credit card
accounts and maintain the customer relationships, these transactions are treated
as sales for financial reporting purposes and the associated loans are not
reflected on the consolidated balance sheets. Retained interests include
contractual subordinated interests, excess transferor's interests and cash
reserve accounts.


                                       48
<PAGE>

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

     The securitization and sale of credit card loans changes our interest in
such loans from lender to servicer, with a corresponding change in how revenue
is reported in the consolidated statements of income. For securitized and sold
credit card loans, amounts that otherwise would have been recorded as interest
income, interest expense, fee income and provision for loan losses are instead
reported in other operating income as "Net securitization and credit card
servicing income." We have various receivables from the trust or conduits and
other assets as a result of securitizations, including: amounts deposited in
accounts held by the trust for the benefit of the trust's security holders;
amounts due from interest rate caps and floors; accrued interest and fees on the
securitized receivables; servicing fee receivables and various other
receivables. These amounts are reported as "Other receivables due from credit
card securitizations, net" on the consolidated balance sheets.

Allowance for Loan Losses

     We provide for loan losses in amounts necessary to maintain the allowance
at a level we estimate to be sufficient to absorb probable losses of principal
and earned interest, net of recoveries, that is inherent in the existing managed
loan portfolio. This effectively reduces our retained interests in loans
securitized to fair value. In evaluating the adequacy of the allowance for loan
losses, we consider several factors, including: historical charge-off and
recovery activity by age (vintage) of each loan portfolio (noting any particular
trends over recent periods); recent delinquency and collection trends by
vintage; current economic conditions and the impact such conditions might have
on borrowers' ability to repay; the risk characteristics of the portfolios; and
other factors. Significant changes in these factors could affect the adequacy of
our allowance for loan losses. In general, we charge off unsecured credit card
accounts at the end of the month during which the loan becomes contractually 180
days past due. In addition, we charge off secured credit card accounts at the
end of the month during which the loan becomes contractually 120 days past due.
Bankrupt accounts are charged off immediately upon formal notification of
bankruptcy. Accounts of deceased cardholders without a surviving, contractually
liable individual, or an estate large enough to pay the debt in full are also
charged off immediately upon notification.

Property and Equipment

     We state property and equipment, and computer hardware and software at cost
and depreciate them on a straight-line basis over their estimated economic
useful lives, which range from one to twenty-five years. We capitalize software
developed for internal use that represents major enhancements or replacements of
operating and management information systems. We begin amortization of such
capitalized software when the systems are fully developed and ready for
implementation. We expense repair and maintenance costs as incurred.

Purchased Portfolio Premium

     The purchased portfolio premium represents the excess of amounts paid for
portfolio acquisitions over the related credit card loan balances net of
reserves and discounts. The intangible assets are amortized over the estimated
periods of benefit, generally five to seven years, in proportion to the expected
benefits to be recognized.

Enhancement Services

         Debt Waiver Products

     Direct Merchants Bank offers various debt waiver products to its credit
card customers for which it retains the claims risk. Revenue for such products
is recognized ratably over the coverage period, generally one month, and
reserves are provided for pending claims based on Direct Merchants Bank's
historical experience with settlement of such claims. Revenues recorded for debt
waiver products are included in the consolidated statements of income under
"Enhancement services revenues" and were $144.7 million, $106.0 million and
$73.8 million for the years ended December 31, 2000, 1999 and 1998,
respectively. Unearned revenues and reserves for pending claims are recorded in
the consolidated balance sheets in "Deferred income" and "Accrued expenses and
other liabilities" and combined amounted to $17.3 million and $7.1 million as of
December 31, 2000 and 1999, respectively.

         Membership Programs

     We generally bill membership fees for enhancement products through
financial institutions, including Direct Merchants Bank, and other
cardholder-based institutions. We record

                                       49
<PAGE>

these fees as deferred membership 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. Deferred enhancement
revenues totaled $199.8 million and $127.5 million at December 31, 2000 and
1999, respectively.

     In accordance with the provisions of Statement of Position 93-7, "Reporting
on Advertising Costs," qualifying membership acquisition costs are deferred and
charged to expense as membership fees are recognized. These costs, which relate
directly to membership solicitations (direct response advertising costs),
principally include: postage, printing, mailings and telemarketing costs. We
amortize these costs on a straight-line basis as we realize revenues over the
membership period. Amortization of membership acquisition costs amounted to
$14.9 million, $9.9 million and $8.9 million for the years ended December 31,
2000, 1999 and 1998, respectively. If deferred membership acquisition costs were
to exceed forecasted future net revenues, we would make an appropriate
adjustment for impairment. All other membership acquisition costs are expensed
as incurred. Deferred membership acquisition costs amounted to $59.3 million and
$30.6 million as of December 31, 2000 and 1999, respectively.

         Extended Service Plans

     We coordinate the marketing activities for Fingerhut's sales of extended
service plans. We perform administrative services and retain the claims risk for
all extended service plans sold. As a result, 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. The
provision for service contract returns charged against deferred income for the
years ended December 31, 2000, 1999 and 1998, amounted to $3.0 million, $5.0
million and $4.8 million, respectively. Additionally, prior to 1999, we
reimbursed Fingerhut for the cost of its marketing media and other services
utilized in the sales of extended service plans, based on contracts sold and on
media utilization costs as agreed to by us and Fingerhut. Beginning in 1999,
Fingerhut was responsible for paying a majority of the marketing expense and
therefore retained a larger portion of the related revenue.

     During the quarter ended March 31, 2000, we adopted Staff Accounting
Bulletin No. 101 - "Revenue Recognition in Financial Statements" for our debt
waiver products. This SAB formalized the accounting for services sold where the
right to a full refund exists, requiring all companies to defer recognition of
revenues until the cancellation period is complete. Previously, we recognized
half of the revenues in the month billed and half in the following month. We now
recognize all of the revenue the month following completion of the cancellation
period. This change resulted in a one-time, non-cash net charge to earnings of
$3.4 million, which is reflected as a "Cumulative effect of accounting change"
in the consolidated statements of income for the year ended December 31, 2000.
Because we have applied the provisions of this SAB to our membership programs
since 1998, before the SEC formalized its guidance, no adjustment was required
for our membership services revenues. The proforma effect of adopting SAB 101
was immaterial for the prior-year periods.

Credit Card Fees and Origination Costs

     Credit card fees include annual membership, late payment, overlimit,
returned check, cash advance transaction fees and other miscellaneous fees.
These fees are assessed according to the terms of the related cardholder
agreements and, except for annual membership fees, are recognized as revenue
when charged to the cardholder's account.

     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 net these
deferred credit card origination costs against the related credit card annual
fee, if any, and amortize them on a straight-line basis over the cardholder's
privilege period, which is generally 12 months. Net deferred fees were $13.1
million and $11.8 million as of December 31, 2000 and 1999, respectively.

Solicitation Expenses

     We generally expense credit card account costs, including printing, credit
bureaus, list processing costs, telemarketing and postage, as incurred over the
two-to-three month period during which the related responses to such
solicitation are received.

Credit Card Fraud Losses

     We experience credit card fraud losses from the unauthorized use of credit
cards. We expense these fraudulent transactions when identified, through the
establishment of a reserve for the transactions. We charge off these amounts
after 90 days, after all attempts to recover the amounts from these
transactions, including chargebacks to merchants and claims against cardholders,
are exhausted.

                                       50
<PAGE>
Interest Rate Risk Management Contracts

     The nature and composition of our assets and liabilities and securitized
loans expose us to interest rate risk. We enter into a variety of interest rate
risk management contracts such as interest rate swap, floor and cap agreements
with highly rated counterparties in order to hedge our interest rate exposure on
securitized loans and deposits. The monthly interest rate differential to be
paid or received on these contracts is accrued and included in "Net
securitization and credit card servicing income" or "Deposit interest expense,"
as appropriate, on the consolidated statements of income. Premiums paid for
these contracts and the related interest payable or receivable under these
contracts are classified under "Other receivables due from credit card
securitization, net," on the consolidated balance sheets. We record premiums
paid for interest rate contracts at cost and amortize them on a straight-line
basis over the life of the contract.

Debt Issuance Costs

     Debt issuance costs are the costs related to issuing new debt securities
and establishing new securitizations under the trust or conduits. We capitalize
the costs as incurred and amortize them to expense over the term of the new debt
security.

Income Taxes

     We determine deferred taxes based on the temporary differences between the
financial statement and the tax bases of assets and liabilities that will result
in future taxable or deductible amounts. The deferred taxes are based on the
enacted rate that is expected to apply when the temporary differences reverse.
For periods prior to the spin off, we were included in the consolidated federal
and certain state income tax returns of Fingerhut Companies, Inc. Based on a tax
sharing agreement between us and Fingerhut Companies, Inc., the 1998 provision
and deferred income taxes were computed based only on our financial results as
if we filed our own federal and state tax returns.

Earnings Per Share

     Basic earnings per share ("EPS") excludes dilution and is computed by
dividing net income applicable to common stockholders by the weighted average
number of common shares outstanding for the year. Diluted EPS reflects the
potential dilution that could occur if dilutive securities or other contracts to
issue common stock were exercised or converted into common stock.

     The following table presents the computation of basic and diluted weighted
average shares used in the per-share calculations:
<TABLE>
                                                               Year Ended December 31,
                                                               -----------------------
                                                     2000       1999         1998
                                                     ----       ----         ----
<S>                                               <C>         <C>          <C>
(In thousands)
Income before extraordinary loss and
     cumulative effect of accounting
     change ...................................   $ 198,591   $ 115,363    $  57,348
Preferred dividends - Series B ................          --       7,506        1,100
Preferred dividends - Series C ................      31,624      17,080           --
Adjustment for the retirement of Series B
     preferred stock ..........................          --     101,615           --
                                                  ---------   ---------    ---------
Net income (loss) applicable to common
     stockholders before extraordinary loss
     and cumulative effect of accounting change     166,967     (10,838)      56,248
Extraordinary loss from the early
     extinguishment of debt ...................          --      50,808           --
Cumulative effect of accounting change, net ...       3,438          --           --
                                                  ---------   ---------    ---------
Net income (loss) applicable to common
     stockholders .............................   $ 163,529   $ (61,646)   $  56,248
                                                  =========   =========    =========

Weighted average common shares
     outstanding (basic common shares) ........      60,070      57,855       57,696
Adjustments for dilutive securities:
Assumed exercise of outstanding stock
   options ....................................       3,348         --(1)      2,209
Assumed conversion of convertible preferred
     stock ....................................      29,164         --(1)         --
                                                  ---------   ---------    ---------
Diluted common shares .........................      92,582      57,855       59,905
                                                  =========   =========    =========

</TABLE>

(1)  For the year ended December 31, 1999, there were options and convertible
     preferred stock outstanding to purchase 3.2 million and 15.3 million common
     shares. These potential common shares have been excluded from the
     computation of diluted earnings per share because their inclusion would
     have been anti-dilutive.

                                       51
<PAGE>
Comprehensive Income

     Statement of Financial Accounting Standard 130 "Reporting Comprehensive
Income," does not apply to our current financial results and therefore, net
income equals comprehensive income.

NOTE 3 - SECURITIZATION ACTIVITY

     Securitization activity as of and for the year ended December 31, 2000, is
as follows:

At December 31, 2000

Principal amount of credit card
     receivables sold ......................           $6,070,224
Retained interests in loans securitized.....            2,023,681
Loans more than 30-days contractually
    delinquent..............................              612,523

For the year ended December 31, 2000

Cash flow to/from the Company
Net proceeds from sales and repayments
    of securitized loans....................           $  551,911
Collections reinvested in revolving
    period securitizations..................            3,858,146
Servicing fees .............................              119,572
Cash flow from retained interests, net......              401,557
                                                       ----------
   Total ...................................           $4,931,186
                                                       ==========

Loans charged off, net of recoveries .......           $  645,309
                                                       ==========

NOTE 4 - ALLOWANCE FOR LOAN LOSSES

     We maintain an allowance for loan losses for both owned loans and the
retained interests in loans securitized. The portion allocated to the retained
interest in loans securitized represents our estimated valuation adjustment to
report this asset in accordance with SFAS 125. For securitized loans, losses and
related provisions for loan losses are reflected in the calculations of net
securitization and credit card servicing income. We make provisions for loan
losses in amounts necessary to maintain the allowance at a level estimated to be
sufficient to absorb probable losses of principal and earned interest, net of
recoveries, inherent in the existing loan portfolio.

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

                           Year Ended December 31,
                           -----------------------
                                               2000         1999         1998
                                               ----         ----         ----

Balance at beginning of year ............   $ 619,028    $ 393,283    $ 244,084
Allowance related to assets acquired, net       5,963       26,293       20,152
Provision for loan losses ...............     388,234      174,800       77,770
Provision for loan losses (1) ...........     529,671      567,737      456,354
Loans charged off .......................    (854,087)    (582,637)    (420,875)
Recoveries ..............................      75,166       39,552       15,798
                                            ---------    ---------    ---------
Net loans charged off ...................    (778,921)    (543,085)    (405,077)
                                            ---------    ---------    ---------
Balance at end of year ..................   $ 763,975    $ 619,028    $ 393,283
                                            =========    =========    =========

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






                                       52
<PAGE>
NOTE 5 - PROPERTY AND EQUIPMENT

The carrying value of property and equipment is as follows:

                                                    At December 31,
                                                    ---------------
                                                    2000       1999
                                                    ----       ----

Furniture and equipment .......................   $ 46,416   $ 12,186
Computer software and equipment ...............     55,399     24,675
Construction in progress ......................      6,842     24,500
Buildings and land ............................     27,805         --
Leasehold improvements ........................     18,537      8,631
                                                  --------   --------
Total .........................................   $154,999   $ 69,992
Less: Accumulated depreciation
   and amortization............................     26,603     13,078
                                                  --------   --------
Balance at end of year ........................   $128,396   $ 56,914
                                                  ========   ========

     Depreciation and amortization expense for the years ended December 31,
2000, 1999 and 1998, was $16.0 million, $6.8 million and $4.4 million,
respectively.


NOTE 6 - PORTFOLIO ACQUISITIONS

     On August 25, 2000, Direct Merchants Bank purchased the U.S. Bankcard
Program from Banco Popular. The acquired credit card portfolio had approximately
184,000 active accounts and approximately $186 million in receivables. On June
30, 1999, Direct Merchants Bank purchased a portion of the consumer bankcard
portfolio of GE Capital Consumer Card Co., a unit of General Electric Company.
The acquired credit card portfolio had approximately 485,000 active accounts and
approximately $1.2 billion in receivables. In December 1998, the Company
acquired an $800 million credit card portfolio from PNC Bank Corp. representing
loans from customers outside of PNC's normal banking relationship.

NOTE 7 - CONVERTIBLE PREFERRED STOCK

     The Series C Perpetual Convertible Preferred Stock is held by affiliates of
the Thomas H. Lee Company, a private equity firm, and is convertible into common
shares at a conversion price of $12.42 per common share subject to adjustment in
certain circumstances. The Series C Preferred Stock has a 9% dividend payable in
additional shares of Series C Preferred Stock and will also receive any cash
dividends paid on our common stock on a converted basis. One share of Series C
Preferred Stock is convertible into 30 shares of common stock, plus a premium
amount designed to guarantee a portion of seven years' worth of dividends at a
9% annual rate. For conversions in 2000, the premium amount would be equal to
approximately 14% of those future dividends. Assuming conversion of the Series C
Preferred Stock into common stock, the Lee Company would own approximately 32%
of the Company on a diluted basis at December 31, 2000. The Series C Preferred
Stock entitles the holders to elect four members to our Board of Directors. The
Series C Preferred Stock may be redeemed by us in certain circumstances after
December 31, 2001, by paying 103% of the redemption price of $372.50 and any
accrued dividends at the time of redemption. We also have the option to redeem
the Series C Preferred Stock after December 9, 2008, without restriction by
paying the redemption price of $372.50 and any accrued dividends at the time of
redemption.

     The Series C Preferred Stock is normally convertible into common stock.
However, in the event that such conversion would result in a stockholder or
group (within the meaning of Rules 13d-3 and 13d-5 promulgated under the
Securities Exchange Act of 1934) obtaining 35% or more of the outstanding voting
stock of the Company, the indenture which governs our outstanding 10% Senior
Notes due 2004 requires us to make an offer to purchase those notes.
Accordingly, for so long as any of our 10% Notes remain outstanding, in the
event that the conversion of the Series C Preferred Stock into common stock
would cause any stockholder or group to beneficially own more than 34.9% of the
outstanding voting stock of the Company, the excess number of shares of Series C
Preferred Stock will be convertible into non-voting stock, currently Series D
Preferred Stock. The Series D Preferred Stock has a liquidation preference of
$.01 per share, is non-voting, except as required by law, and will automatically
convert into common stock at the time such conversion will not trigger the
restrictions set forth in the indenture described above.



                                    53
<PAGE>
     Prior to shareholder approval and the receipt of notice that there was no
regulatory objection to the Series C Preferred Stock investment, the Lee Company
agreed to purchase $200 million in Series B Perpetual Preferred Stock and $100
million in 12% Senior Notes due 2006. We also issued the Lee Company 7.5 million
ten-year warrants to purchase shares of our common stock.

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

NOTE 8 - STOCK OPTIONS

     We offer the Metris Companies Inc. Long-Term Incentive and Stock Option
Plan, which permits a variety of stock-based grants and awards and gives us
flexibility in tailoring our long-term compensation programs. In 2000, the Board
of Directors recommended, and the shareholders approved, an increase in the
number of shares permitted to be granted under the plan to 15.0 million shares
of common stock for awards of stock options or other stock-based awards, subject
to adjustment in certain circumstances. As of December 31, 2000, 1.3 million
shares were available for grant.

     The Compensation Committee has the authority to determine the exercise
prices, vesting dates or conditions, expiration dates and other material
conditions upon which options or awards may be exercised, except that the option
price for Incentive Stock Options ("ISOs") may not be less than 100% of the fair
market value of the common stock on the date of grant (and not less than 110% of
the fair market value in the case of an ISO granted to any employee owning more
than 10% of the common stock) and the terms of nonqualified stock options may
not exceed 15 years from the date of grant (not more than 10 years for ISOs and
five years for ISOs granted to any employee owning more than 10% of the common
stock). Full- or part-time employees, consultants or independent contractors are
eligible to receive nonqualified options and awards. Only full- or part-time
employees are eligible to receive ISOs.

     During 2000, 1999 and 1998, we granted 4.2 million, 2.7 million and 3.2
million options, respectively, to officers and employees. Restricted stock
grants are also issued under the stock option plan to our executive officers. A
total of 0.1 million and 0.3 million common shares were granted in 2000 and
1999, with an approximate aggregate market value of $2.3 million and $4.0
million at the time of the grant, respectively. The market value of these
restricted shares at the date of grant is amortized into expense over a period
not less than the restriction period. We recognized $1.1 million in 2000 and
$0.6 million in 1999 for these restricted shares. If the restrictions are
removed, generally upon death, disability or retirement, the remaining
unamortized market value of the restricted shares is expensed.

     We also offer the Metris Companies Inc. Non-Employee Director Stock Option
Plan which provides up to 750,000 shares of common stock for awards of options,
subject to adjustments in certain circumstances. During 2000, 1999 and 1998, we
granted 82,500, 127,500 and 75,000 options, respectively. At December 31, 2000,
375,000 shares were available for grant.

     We have adopted the disclosure-only provisions of SFAS No. 123 "Accounting
for Stock-Based Compensation." Accordingly, we continue to account for
stock-based compensation under the provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees." Under the guidelines
of Opinion 25, compensation cost for stock-based employee compensation plans is
recognized based on the difference, if any, between the quoted market price of
the stock on the date of grant and the amount an employee must pay to acquire
the stock.




                                       54
<PAGE>
     Had compensation cost for these plans been determined based on the fair
value methodology prescribed by SFAS 123, our net earnings and earnings per
share would have been reduced to the pro forma amounts indicated below:

                                                      Year Ended December 31,
                                                      -----------------------
                                                    2000        1999       1998
                                                    ----         ----      ----

Net income as reported ......................   $   195,193    $64,555   $57,348
Net income pro forma ........................       185,356     59,733    47,264
Diluted earnings (loss) per share
   as reported ..............................          2.11      (1.07)     0.94
Diluted earnings (loss) per share
   pro forma ................................
                                                       2.00      (1.15)     0.79

     The above pro forma amounts may not be representative of the effects on
reported net earnings for future years. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing model. The
following weighted-average assumptions were used for grants in 2000, 1999 and
1998, respectively: dividend yield of 0.10%, 0.10% and 0.10%; expected
volatility of 58.4%, 55.4% and 71.3%; risk-free interest rate of 6.40%, 5.30%
and 4.72%; and expected lives of six years, six years and seven years,
respectively.

     Information regarding our stock option plans for 2000, 1999 and 1998, is as
follows:
<TABLE>

                                                                         Year Ended December 31,

                                                 2000                           1999                            1998
                                                 ----                           ----                            ----
                                                         Weighted-                     Weighted-                        Weighted-
                                                          Average                       Average                          Average
                                                          Exercise                      Exercise                         Exercise
                                        Shares             Price         Shares          Price            Shares          Price
                                        ------             -----         ------          -----            ------          -----
<S>                                   <C>             <C>               <C>            <C>               <C>            <C>
Options outstanding, beginning of
   year ..........................    10,129,614      $      9.72       7,862,100      $      8.56       5,046,600      $      5.01
Options exercised ................     4,212,537             5.46         111,750             6.40         104,250             5.33
Options granted ..................     4,348,685            24.78       2,860,914            13.47       3,241,500            14.52
Options canceled/
   forfeited .....................       358,700            22.64         481,650            13.79         321,750            13.92
                                       --------------------------------------------------------------------------------------------
Options outstanding,
   end of year ...................     9,907,062            17.67      10,129,614             9.72       7,862,100             8.56
Weighted-average fair value of
   options granted during
   the year ......................            --            13.47              --             6.53              --            10.77

</TABLE>

     The following table summarizes information about stock options outstanding
at December 31, 2000:
<TABLE>

                                         Options Outstanding               Options Exercisable
                                         -------------------               -------------------

                                              Weighted-
                                               Average     Weighted-                    Weighted-
                                Number        Remaining     Average       Number         Average
                             Outstanding      Contractual   Exercise     Exercisable     Exercise
Exercise Price               at 12/31/00        Life         Price      at 12/31/00       Price
--------------               -----------        ----         -----      -----------       -----
<S>     <C>                    <C>              <C>         <C>          <C>              <C>
 $ 5.33-$13.46 .............   4,351,869        7.6         $10.16       2,411,532        $10.18
 $13.47-$24.42 .............   3,744,642        8.6          22.01       1,144,497         18.86
 $24.43-$38.88 .............   1,810,551        9.5          26.78          82,650         25.79
 ------ ------                 ---------        ---         ------      ----------        ------
                               9,907,062        8.3         $17.67       3,638,679        $13.26
                               =========        ===         ======      ==========        ======
</TABLE>

         Employee Stock Purchase Plan

     During the third quarter of 1999, we adopted an employee stock purchase
plan (ESPP), whereby eligible employees may authorize payroll deductions of up
to 15% of their salary to purchase shares of our common stock. Under the plan,
shares of our common stock may be purchased at the end of each monthly offering
period at 85% of the lower of the fair market value on the first or last day of
the monthly offering period. Employees contributed $2.0 million and $0.7 million
to purchase 100,624 and 40,022 shares of common stock under the ESPP for 2000
and 1999, respectively. We are authorized to issue up to 2.6 million shares of
common stock to employees under the plan, and as of December 31, 2000, there
were approximately 2.4 million shares available for future issuance.

                                       55
<PAGE>
         Management Stock Purchase Plans

     We provide management stock purchase plans, whereby any employee who is a
Senior Vice President or higher and who participates in the Metris Management
Incentive Bonus Plan is eligible to participate. Participants may elect to defer
up to 50% of their bonus received under the Management Bonus Plan, which is
credited to a stock purchase account as restricted stock units. We will make a
match of $1 for every $3 contributed by the participant. The participant's
contributions are vested immediately and our matching contributions vest after
three years (two years for contributions made for the year of adoption).
Employees contributed approximately $1.3 million to purchase 52,231 restricted
stock units under the Plans for 2000. The restricted stock units convert to
common stock when distributed from the Plans. We are authorized to issue up to
900,000 shares of common stock to employees under the Plans, and as of December
31, 2000, approximately 830,000 of the authorized shares were available for
future issuance.

NOTE 9 - EMPLOYEE BENEFIT PLANS

     We offer a defined contribution plan that is intended to qualify under
section 401(k) of the Internal Revenue Code. The 401(k) Plan provides retirement
benefits for eligible employees. Eligible employees may elect to contribute to
the 401(k) Plan, and we match a portion of employee contributions and make
discretionary contributions based upon our financial performance. For the years
ended December 31, 2000, 1999 and 1998, we contributed $1.4 million, $1.8
million and $0.9 million to the 401(k) Plan, respectively.

     In 2000, the Company adopted a new Non-Qualified Deferred Compensation Plan
for a select group of management or highly compensated employees. These
employees are allowed to participate in the 401(k) Plan under the new Plan in
2000, but were unable to participate in the 401(k) Plan under the previous
Non-Qualified Deferred Compensation Plan in 1998. There was no Non-Qualified
Preferred Compensation Plan in effect during 1999. The new Plan provides saving
and investment opportunities to those individuals who elect to defer a portion
of their salary. Participants in the prior Plan were allowed to transfer their
balances to the new Plan. The Company matches a portion of the employee
contribution and makes discretionary contributions based on the Company's
financial performance. For the years ended December 31, 2000 and 1998,
respectively, the Company contributed $0.3 million and $0.2 million to the
Plans.

         Supplemental Executive Retirement Plan

     Our funded Supplemental Executive Retirement Plan ("SERP"), established in
1999, provides officers and other members of senior management with supplemental
retirement benefits in excess of limits imposed on qualified plans by federal
tax law. The SERP is an account balance plan to which we will make annual
contributions targeted to provide 60% of the average of the participant's final
five years of salary and bonus with us. These benefits will be paid in 15 annual
installments beginning the year after they become eligible to receive benefits.
Participants are eligible to receive benefits upon leaving our employment if
they are at least 65 years of age or at least age 55 with five years of plan
participation, if a change of control occurs or in the event of death. We
recognized $0.9 million and $2.2 million of expense in 2000 and 1999,
respectively, related to the SERP Plan. Our liability was $3.1 million and $2.2
million at December 31, 2000 and 1999, respectively, for future payments under
this Plan. This expense and liability are calculated based on actuarial
assumptions regarding years of participation, future investment returns and
participants continuing in the Plan until age 65.

NOTE 10 - INCOME TAXES

     The components of the provision for income taxes consisted of the
following:

                                                  Year Ended December 31,
                                                  -----------------------
                                                2000      1999        1998
                                                ----      ----        ----
Current:
   Federal ...............................   $ 77,185   $ 94,309    $ 98,428
   State .................................      7,867     14,236       8,355
Deferred .................................     39,268    (32,592)    (70,883)
                                             --------   --------    --------
                                             $124,320   $ 75,953    $ 35,900
                                             ========   ========    ========


                                       56
<PAGE>
     A reconciliation of our effective income tax rate compared to the statutory
federal income tax rate is as follows:

                                                      Year Ended
                                                     December 31,
                                                     ------------
                                                 2000    1999    1998
                                                 ----    ----    ----

Statutory federal income tax rate ............   35.0%   35.0%   35.0%
State income taxes, net of federal benefit ...    2.8%    3.2%    3.2%
Other, net ...................................    0.7%    1.5%    0.3%
                                                 ----    ----    ----
Effective income tax rate ....................   38.5%   39.7%   38.5%
                                                 ====    ====    ====


     Our deferred tax assets and liabilities are as follows:

                                                           At December 31,
                                                           ---------------
                                                           2000      1999
                                                           ----      ----
Deferred  income  tax  assets resulting from
   future deductible temporary differences:
   Allowance for loan losses .........................   $214,989  $196,840
   Deferred revenues .................................     74,755    48,200
   Other .............................................     18,800    19,378
                                                         --------  --------
Total deferred tax assets ............................   $308,544  $264,418

Deferred  income tax  liabilities  resulting  from
   future  taxable  temporary differences:
      Accrued interest on credit card loans ..........   $114,595  $ 65,260
      Deferred costs .................................     30,701    11,464
      Intangible amortization ........................     10,900       750
      Other ..........................................      6,003     1,331
                                                         --------  --------
Total deferred tax liabilities .......................   $162,199  $ 78,805
                                                         --------  --------
Net deferred tax assets ..............................   $146,345  $185,613
                                                         ========  ========

     We believe, based on our history of operating earnings, expectations for
operating earnings in the future, and the expected reversal of taxable temporary
differences, earnings will be sufficient to fully utilize the deferred tax
assets.

NOTE 11 - RELATED PARTY TRANSACTIONS

     Prior to September 1998, Fingerhut owned approximately 83% of our
outstanding common shares. In September 1998, Fingerhut distributed the
remaining shares of the Company to shareholders of Fingerhut in a tax-free
distribution.

     Information related to transactions with Fingerhut have not been presented
for the years ended December 31, 2000 and 1999, because Fingerhut is no longer
considered a related party after distributing their remaining shares. Prior to
the distribution of the shares, Fingerhut and its various subsidiaries had
historically provided financial and operational support to us. We believe the
fees paid for the operational support reasonably approximate market rates for
the services performed. The direct and allocated expenses represent charges for
various administrative services. We have also entered into several other
agreements with Fingerhut that detail further business arrangements between the
companies. Each of these agreements was negotiated and we believe they
reasonably approximate contracts between unrelated third parties. Our exclusive
license to use Fingerhut's customer database to market financial service
products will become non-exclusive after October 31, 2001.

     The following table summarizes the amounts of revenues, direct expense
charges, cost allocations (including net interest income or expense), and our
costs of the agreements mentioned above for each of the years reflected in our
financial statements for the year ended December 31, 1998.

Revenues:
Enhancement services .................................   $15,439
Expenses:
Credit card account and other product solicitation
   and marketing expenses ............................    10,796
Data processing services and communications...........     2,344
Other ................................................       659

     In the ordinary course of business, our executive officers may have credit
card loans issued by us. Pursuant to our policy, such loans are issued on the
same terms as those available to all eligible employees and do not involve more
than the normal risk of collectibility.

                                       57
<PAGE>
NOTE 12 - COMMITMENTS AND CONTINGENCIES

     Commitments to extend credit to consumers represent the unused credit
limits on open credit card accounts. These commitments amounted to $11.1
billion, $9.7 billion and $5.9 billion as of December 31, 2000, 1999 and 1998,
respectively. While these amounts represent the total lines of credit available
to our customers, we have not experienced and do not anticipate that all of our
customers will exercise their entire available line at any given point in time.
We also have the right to increase, reduce, cancel, alter or amend the terms of
these available lines of credit at any time.

     We lease certain office facilities and equipment under various cancelable
and non-cancelable operating lease agreements that provide for the payment of a
proportionate share of property taxes, insurance and other maintenance expenses.
These leases also may include scheduled rent increases and renewal options.
Rental expense for these operating leases for the years ended December 31, 2000,
1999 and 1998, was $18.1 million, $11.1 million and $6.4 million, respectively.

     Future minimum lease commitments at December 31, 2000, under cancelable and
non-cancelable operating leases are as follows:

    2001                                            $      18,528
    2002                                                   15,849
    2003                                                   12,354
    2004                                                   11,014
    2005                                                    8,650
    Thereafter                                             39,027
                                                    -------------
       Total minimum lease payments                 $     105,422
                                                    =============


     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 Court in Minneapolis, Minnesota against
Metris Companies Inc., 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 cardholders 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. We filed our answer to the complaint in
August 2000. To date, the complaint has not been certified as a class action
claim. We believe we have numerous substantive legal defenses to these claims
and are prepared to vigorously defend the case. There can be no assurance that
defense or resolution of these matters will not have a material adverse effect
on our financial position.

     Direct Merchants Bank's activities as a credit card lender are subject to
regular review and examination by federal regulators to assess compliance with
various federal consumer protection laws. Regulators are authorized to impose
penalties for violations of these laws and, in certain cases, to order Direct
Merchants Bank to pay restitution to injured cardholders.

NOTE 13 - CAPITAL REQUIREMENTS AND RESTRICTED PAYMENTS

     In the normal course of business, we enter into agreements, or are 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 us and our affiliates. Such restrictions limit Direct Merchants
Bank's ability to lend to us and our affiliates. Additionally, Direct Merchants
Bank is limited in its ability to declare dividends to us in accordance with the
national bank dividend rules.

     Direct Merchants Bank is subject to certain capital adequacy guidelines
adopted by the Office of the Comptroller of Currency. At December 31, 2000 and
1999, 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 OCC.

     We are also bound by restrictions set forth in the indentures related to
the Senior Notes dated November 7, 1997, and July 15, 1999. Pursuant to those
indentures, we may not make dividend payments in the event of a default or if
all such restricted payments would exceed 25% of our aggregate cumulative net
income.

                                       58
<PAGE>
NOTE 14 - CONCENTRATIONS OF CREDIT RISK

     A concentration of credit risk is defined as significant credit exposure
with an individual or group engaged in similar activities or affected similarly
by economic conditions. We are active in originating credit card loans
throughout the United States, and no individual or group had a significant
concentration of credit risk at December 31, 2000 or 1999. The following table
details the geographic distribution of our retained, sold and managed credit
card loans:

                                     Retained       Sold       Managed
                                     --------       ----       -------
At December 31, 2000
--------------------
California .......................  $  404,947   $  765,909   $1,170,856
Texas ............................     273,187      516,701      789,888
New York .........................     261,192      494,015      755,207
Florida ..........................     238,972      451,988      690,960
Ohio .............................     129,958      245,801      375,759
Illinois .........................     128,650      243,326      371,976
Pennsylvania .....................     104,911      198,427      303,338
All others .......................   1,661,067    3,154,057    4,815,124
                                    ----------   ----------   ----------
   Total .........................  $3,202,884   $6,070,224   $9,273,108
                                    ==========   ==========   ==========


                                     Retained       Sold        Managed
                                     --------       ----        -------
At December 31, 1999
--------------------
California .......................  $  224,359   $  702,254   $  926,613
Texas ............................     158,760      496,927      655,687
New York .........................     134,087      419,700      553,787
Florida ..........................     131,960      413,043      545,003
Ohio .............................      73,313      229,473      302,786
Illinois .........................      66,947      209,546      276,493
Pennsylvania .....................      56,025      175,363      231,388
All others .......................     917,558    2,872,007    3,789,565
                                    ----------   ----------   ----------
   Total .........................  $1,763,009   $5,518,313   $7,281,322
                                    ==========   ==========   ==========

     We target our consumer lending products primarily to moderate-income
consumers. Primary risks associated with lending to this market are that they
may be more sensitive to future economic downturn, which may make them more
likely to default on their obligations.











                                       59
<PAGE>
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS

     We have estimated the fair value of our financial instruments in accordance
with SFAS No. 107, "Disclosures About Fair Value of Financial Instruments."
Financial instruments include both assets and liabilities, whether or not
recognized in our consolidated balance sheets, for which it is practicable to
estimate fair value. Additionally, certain intangible assets recorded on the
consolidated balance sheets, such as purchased credit card relationships, and
other intangible assets not recorded on the consolidated balance sheets (such as
the value of the credit card relationships for originated loans and the
franchise values of our various lines of business) are not considered financial
instruments and, accordingly, are not valued for purposes of this disclosure. We
believe there is substantial value associated with these assets based on current
market conditions, including the purchase and sale of such assets. Accordingly,
the aggregate estimated fair value amounts presented do not represent the entire
underlying value of the Company.

     Quoted market prices generally are not available for all of our financial
instruments. Accordingly, in cases where quoted market prices are not available,
fair values were estimated using present value and other valuation techniques
that are significantly affected by the assumptions used, including the discount
rate and estimated future cash flows. These assumptions are based on historical
experience and assessments regarding the ultimate collectibility of assets and
related interest, and estimates of product lives and repricing characteristics
used in our asset/liability management process. These assumptions involve
uncertainties and matters of judgment, and therefore, cannot be determined with
precision. Thus, changes in these assumptions could significantly affect the
fair-value estimates.

     A description of the methods and assumptions used to estimate the fair
value of each class of our financial instruments is as follows:

Cash and cash equivalents and accrued interest and fees receivable

     The carrying amounts approximate fair value due to the short-term nature of
these instruments.

 Net retained interests in loans securitized and net credit card loans

     Securitized credit card loans are originated with variable rates of
interest that adjust with changing market interest rates. Thus, the carrying
value of the retained interest in the loans securitized, less the allowance for
loan losses, approximates fair value. This valuation does not include the value
that relates to estimated cash flows generated from new loans from existing
customers over the life of the cardholder relationship. Accordingly, the
aggregate fair value of the credit card loans does not represent the underlying
value of the established cardholder relationships.

Interest-only strip

     The fair value of the interest-only strip is estimated by discounting the
expected future cash flows from the trust and each of the conduits at rates
which we believe to be consistent with those that would be used by an
independent third party. However, because there is no active market for this,
the fair values presented may not be indicative of the value negotiated in an
actual sale. The future cash flows used to estimate fair value are limited to
the securitized receivables that exist at year end and does not reflect the
value associated with future receivables generated by cardholder activity.

Interest rate cap, floor and swap agreements

     The fair values of interest rate cap, floor and swap agreements were
obtained from dealer quoted prices. These values generally represent the
estimated amounts we would receive or pay to terminate the agreements at the
reporting dates, taking into consideration current interest rates and the
current creditworthiness of the counterparties.

Other securitization assets

     For other securitization assets, the carrying amount is a reasonable
estimate of the fair value, due to their short-term nature.

Debt

     We make short-term borrowings with variable rates of interest that adjust
with changing market interest rates. Thus, carrying value approximates fair
value.

     We obtain the fair value of long-term debt from quoted market yields, when
available.

Deposits

     The fair value for fixed rate certificates of deposit are estimated based
on quoted market prices of comparable instruments.

                                       60
<PAGE>
     The estimated fair values of our financial instruments are summarized as
follows:
<TABLE>
                                                              At December 31,
                                                              ---------------
                                                      2000                       1999
                                                      ----                       ----

                                              Carrying    Estimated      Carrying    Estimated
                                               Amount     Fair Value      Amount     Fair Value
                                               ------     ----------      ------     ----------
<S>                                          <C>          <C>          <C>          <C>
Cash and cash equivalents ................   $  521,440   $  521,440   $  194,433   $  194,433
Accrued interest and fees receivable......       30,531       30,531       17,704       17,704
Credit card loans, net ...................    1,056,080    1,056,080      133,608      133,608
Securitization assets:
   Retained interest in loans securitized,
   net ...................................    1,382,829    1,382,829    1,010,373    1,010,373
   Interest rate cap agreements ..........       39,365       15,468       27,113       34,526
   Interest rate floor agreements ........           --           --           23            6
   Interest-only strip ...................           --           --           --           --
   Other .................................      147,329      147,329      216,842      216,842
Interest rate swap agreements ............           --        2,716           --           --
Debt .....................................      356,066      327,917      345,012      346,218
Deposits .................................    2,106,199    2,109,690      775,381      775,381
</TABLE>

     We have performed an analysis of the fair market value by discounting
future cash flows of the trust and each of the conduits at rates which we
believe to be consistent with those that would be used by an independent third
party. However, because there is no active market for this, the fair values
presented may not be indicative of the value negotiated in an actual sale. The
future cash flows used to estimate fair value are limited to the securitized
receivables that exist at year end and does not reflect the value associated
with future receivables generated by cardholder activity.

     The significant assumptions used at year end for estimating the fair value
of the retained interest in loans securitized and related interest-only strip
are as follows:

                                                  At December 31,

                                                  2000    1999
                                                  ----    ----

Annual discount rate(1) ........................   15%   15%/12%
Monthly payment rate ...........................    7%        7%
Net interest rate spread(2) ....................   14%       14%
Annual principal and finance charge
     default rate ..............................   16%       17%

(1)  The 1999 discount rate for retained interests was 15% and interest-only
     strip was 12%.

(2)  Weighted average Annual Percentage Rate (APR) minus weighted average cost
     of funds.

     At December 31, 2000, the sensitivity of the current fair value to
immediate 10 percent and 20 percent adverse changes are as follows (in
millions):

                                                  Impact on Fair Value
                                                  --------------------
                                         10% adverse change   20% adverse change
                                         ------------------   ------------------

Annual discount rate ...................      $ 13                 $ 26
Monthly payment rate ...................        22                   47
Net interest rate spread ...............       109                  212
Annual principal and finance charge
     default rate ......................       141                  278


     The actual life-to-date annual principal and finance charge default rates
for loans securitized are as follows:

       December 31, 2000 .........       13%
       December 31, 1999 .........       13%
       December 31, 1998 .........       12%

     We believe these sensitivity analyses do not accurately reflect the
potential impact on the asset values as they do not consider potential
offsetting positive impacts that would occur in the portfolio.

                                       61
<PAGE>
NOTE 16- DERIVATIVE FINANCIAL INSTRUMENTS

     We enter into interest rate cap, floor and swap agreements to hedge the
cash flow and earnings impact of fluctuating market interest rates on the spread
between the floating rate loans and the floating and fixed rate debt issued to
fund the loans. In connection with the issuance of term asset-backed securities
by the trust, we enter into term interest rate cap agreements with highly rated
bank counterparties to effectively cap the potentially negative impact to us
from increases in the floating interest rate of the securities. We also enter
into interest rate swap agreements to hedge the fair value of a portion of our
fixed rate deposits. These interest rate agreements are for original terms
ranging from two to ten years and will terminate between February 2002 and
January 2010.

                     Notional Amounts of Interest Rate Swap,
                   Cap and Floor Agreements Purchased and Sold
                   -------------------------------------------


                                              Weighted-               Weighted-
Year Ended December 31,                        Average                 Average
                                              Interest                 Interest
(Dollars in thousands)             2000         Rate        1999         Rate
                                   ----         ----        ----         ----
Interest rate swap
    agreements:
     Beginning balance .....    $       --        --      $       --        --
     Additions .............       249,000      7.0%              --        --
     Maturities/terminations            --        --              --        --
                                ----------                ----------
     Ending balance ........    $  249,000      7.0%      $       --        --
                                ==========                ==========
Interest rate caps:
   Beginning balance .......    $4,213,021      9.4%      $2,393,021      8.7%
     Additions .............     1,260,774      8.5%       2,460,000      9.5%
     Maturities/terminations       354,167      9.1%         640,000      7.4%
                                ----------                ----------
     Ending balance ........    $5,119,628      9.2%      $4,213,021      9.4%
                                ==========                ==========

Interest rate floor:
     Beginning balance .....    $   58,333      6.2%      $  467,367      6.2%
     Additions .............            --        --              --        --
     Maturities/terminations        58,333      6.2%         409,034      6.2%
                                ----------                ----------
     Ending balance ........    $       --        --      $   58,333      6.2%
                                ==========                ==========

     Interest rate risk management contracts are generally expressed in notional
principal or contract amounts that are much larger than the amounts potentially
at risk for nonpayment by counterparties. Therefore, in the event of
nonperformance by the counterparties, our credit exposure is limited to the
uncollected interest and contract market value related to the contracts that
have become favorable to us. We manage the credit risk of such contracts through
established risk limits and monitoring of the credit ratings of our
counterparties. We currently have no reason to anticipate nonperformance by any
counterparty.









                                       62
<PAGE>
NOTE 17 - SEGMENTS

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

     We market our enhancement services, including (i) debt waiver protection
for unemployment, disability and death, (ii) membership programs such as card
registration, purchase protection and other club memberships, and (iii)
third-party insurance, directly to our credit card customers 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. To do so, the income statement and balance sheet are adjusted to
reverse the effects of securitizations. Presentation on a managed basis is not
in conformity with generally accepted accounting principles. The elimination
column in the segment table includes adjustments to present the information on
an owned basis as reported in the financial statements of this annual 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 include these expenses
in the reconciliation of the income before income taxes (and cumulative effect
of accounting change and extraordinary loss) for the reported segments to the
consolidated total. We do not allocate capital expenditures for leasehold
improvements, capitalized software and furniture and equipment to operating
segments. There were no operating assets located outside of the United States
for the periods presented.

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

<TABLE>
                                                                     2000
                                                                     ----

                                       Consumer
                                       Lending          Enhancement
                                       Products          Services          Reconciliation (a)    Consolidated
                                       --------          --------          ------------------    ------------
<S>                                   <C>              <C>                  <C>                  <C>
Interest
  income .......................      $ 1,596,352      $    11,848          $(1,103,422)(b)      $   504,778
Interest expense ...............          533,325               --             (400,319)(b)          133,006
                                      -----------      -----------          -----------          -----------
Net interest
  income .......................        1,063,027           11,848             (703,103)             371,772
Other revenue ..................          494,155          266,200              173,432              933,787
Total revenue ..................        2,090,507          278,048             (929,990)           1,438,565
Income before
  income taxes and
  cumulative effect
  of accounting change..........          560,772 (c)      176,756 (c)         (414,617)(d)          322,911
Total assets ...................      $ 9,013,828      $   154,236          $(5,432,039)(e)      $ 3,736,025
</TABLE>








<PAGE>
<TABLE>
                                                                     1999
                                                                     ----

                                       Consumer
                                       Lending          Enhancement
                                       Products          Services          Reconciliation (a)    Consolidated
                                       --------          --------          ------------------    ------------
<S>                                   <C>              <C>                  <C>                  <C>
Interest
    income .....................      $1,163,663       $    4,649         $  (932,143) (b)       $  236,169
Interest expense ...............         340,066               --            (284,225) (b)           55,841
                                      ----------       ----------         -----------            ----------
Net interest
  income .......................         823,597            4,649            (647,918)              180,328
Other revenue ..................         368,500          175,091              80,181               623,772
Total revenue ..................       1,532,163          179,740            (851,962)              859,941
Income before
  income taxes and
  extraordinary loss ...........         392,453 (c)      100,646 (c)        (301,783) (d)          191,316
Total assets ...................      $7,190,903       $  116,106         $(5,261,927) (e)       $2,045,082
</TABLE>
<TABLE>



















                                       63
<PAGE>
                                                                     1998
                                                                     ----

                                       Consumer
                                       Lending          Enhancement
                                       Products          Services          Reconciliation (a)    Consolidated
                                       --------          --------          ------------------    ------------
<S>                                   <C>              <C>                  <C>                  <C>
Interest
    income .....................      $  740,768      $    2,754          $  (630,311) (b)       $  113,211
Interest expense ...............         237,710              --             (207,197) (b)           30,513
                                      ----------      ----------           ----------            ----------
Net interest
  income .......................         503,058           2,754             (423,114)               82,698
Other revenue ..................         239,597         109,123              (33,240)              315,480
Total revenue ..................         980,365         111,877             (663,551)              428,691
Income before
  income taxes .................         188,148 (c)      73,279 (c)         (168,179) (d)           93,248
Total assets ...................      $5,375,925      $   58,052          $(4,488,258) (e)       $  945,719
</TABLE>

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

(b) The reconciliation to consolidated owned interest income and interest
expense includes the elimination of $11.8 million, $4.6 million and $2.8 million
of intercompany interest received by the enhancement services segment from the
consumer lending products segment for 2000, 1999 and 1998, respectively.

(c) Income before income taxes, extraordinary loss 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  cardholders of $18.3 million,
$6.7 million and $3.3 million for 2000, 1999 and 1998, respectively.

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

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


NOTE 18 - DEBT AND DEPOSITS

     During July of 2000, we amended and restated our credit facility. The
amended credit facility consists of a $170 million revolving credit facility and
a $100 million term loan which mature in July 2003. At December 31, 2000 and
1999, we had outstanding borrowings of $100 million under the term loan facility
with weighted-average interest rates of 9.9% and 8.7%, respectively. At December
31, 2000, we were in compliance with all financial covenants under these
agreements.

     We have $150 million of 10.125% Senior Notes due 2006 outstanding. These
Senior Notes were issued at a discount of $6.3 million to yield an effective
interest rate of 11%. The Senior Notes due 2006 and credit facility are
unconditionally guaranteed on a senior basis, jointly and severally, by Metris
Direct, Inc. and Metris Recovery Services, Inc. (the "Guarantors"), and all of
our future subsidiaries that guarantee any of our indebtedness. The guarantee is
an unsecured obligation of the Guarantor and ranks equally with all existing and
future unsubordinated indebtedness. We also have $100 million of 10% Senior
Notes due 2004 outstanding with terms and conditions substantially similar to
the Senior Notes due 2006. We also have approximately $0.9 million of debt with
local governments to support growth in those areas.

     Our debt outstanding as of December 31, 2000, matures as follows:

      2001             $    362
      2002                1,197
      2003              100,434
      2004              100,476
      2005                8,543
      Thereafter        145,054
                       --------
           Total       $356,066
                       ========


                                       64
<PAGE>
     Direct Merchants Bank issues certificates of deposit of $100,000 or more.
As of December 31, 2000 and 1999, $2.1 billion and $0.8 billion of CDs were
outstanding with original maturities ranging from three months to five years and
three months to three years, respectively. These CDs pay fixed interest rates
ranging from 5.4% to 7.6% and 5.2% to 6.6% at December 31, 2000 and 1999,
respectively.

     Our CDs outstanding as of December 31, 2000 and 1999, mature as follows:

                                   2000                  1999
                                   ----                  ----

Three months or less ...  $  359,860    17.3%   $  126,100    16.6%
Over three months
     through twelve
     months ............   1,214,288    58.3%      417,100    55.0%
Over one year through
     three years .......     467,652    22.5%      215,300    28.4%
Over three years .......      39,464     1.9%           --      --
                          ----------   -----    ----------   -----
Total certificates of
     deposits ..........  $2,081,264   100.0%   $  758,500   100.0%
                          ==========   =====    ==========   =====

     We have various subsidiaries which have not guaranteed the Senior Notes or
credit facility. We have prepared condensed consolidating financial statements
of the Company, the Guarantor subsidiaries and the non-guarantor subsidiaries
for purposes of complying with SEC reporting requirements. Such financial
statements are included in Note 18 of our consolidated financial statements
included in our Annual Report on Form 10-K filed with the SEC.

















                                       65
<PAGE>
                     Metris Companies Inc. and Subsidiaries
     Summary of Consolidated Quarterly Financial Information and Stock Data
            (Dollars in thousands, expect per-share data) (unaudited)

                                             2000
                                             ----

                             Fourth      Third     Second      First
                             Quarter    Quarter    Quarter    Quarter
                             -------    -------    -------    -------
Summary of Operations:
Interest Income .........   $156,378   $134,840   $115,759   $ 97,801
Interest Expense ........     44,722     35,394     28,782     24,108
                            --------   --------   --------   --------
Net Interest Income .....    111,656     99,446     86,977     73,693
Provision for Loan
     Losses .............     91,290    110,936     98,215     87,793
Other Operating Income ..    214,663    239,629    238,023    241,472
Other Operating Expense .    156,475    149,649    148,167    140,123
                            --------   --------   --------   --------
Income Before Income
     Taxes and
     Cumulative
     Effect of Accounting
     Change .............     78,554     78,490     78,618     87,249
Income Taxes ............     29,999     30,130     30,338     33,853
                            --------   --------   --------   --------
Income Before Cumulative
     Effect of
     Accounting
     Change .............     48,555     48,360     48,280     53,396
Cumulative Effect of
     Accounting Change
     (Net of Income Taxes
     of $2,180) .........         --         --         --      3,438
                            --------   --------   --------   --------
Net Income ..............     48,555     48,360     48,280     49,958
Preferred Stock Dividends      8,220      8,036      7,770      7,598
                            --------   --------   --------   --------
Net Income Applicable to
    Common Stockholders..   $ 40,335   $ 40,324   $ 40,510   $ 42,360
                            ========   ========   ========   ========

Per Common Share:
Earnings per Share:
     Basic (1) ..........   $   0.65   $   0.66   $   0.69   $   0.73
     Diluted (1) ........       0.52       0.52       0.53       0.55
Shares used to Compute
     EPS (000's):
     Basic ..............     62,151     61,293     58,838     57,963
     Diluted ............     93,731     93,444     91,568     90,658
Cash Dividends ..........   $  0.010   $  0.010   $  0.007   $  0.007
Market Prices:
     High ...............   $  42.25   $  42.56   $  29.81   $  26.71
     Low ................      22.81      25.13      22.00      14.83
     Close ..............      26.31      39.50      25.14      25.92

(1)  Earnings per share for the first quarter reflects the $3.4 million
     one-time, non-cash accounting impact from the adoption of SAB 101 for our
     debt waiver products.







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<PAGE>
<TABLE>
                                            Metris Companies Inc. and Subsidiaries
                               Summary of Consolidated Quarterly Financial Information and Stock Data
                                      (Dollars in thousands, expect per-share data) (unaudited)

                                                                               1999
                                                                               ----

                                                            Fourth       Third       Second        First
                                                            Quarter     Quarter      Quarter      Quarter
                                                            -------     -------      -------      -------
Summary of Operations:
<S>                                                       <C>          <C>          <C>          <C>
Interest Income .......................................   $  82,835    $  67,935    $  43,536    $  41,863
Interest Expense ......................................      20,680       15,725       10,061        9,375
                                                          ---------    ---------    ---------    ---------
Net Interest Income ...................................      62,155       52,210       33,475       32,488
Provision for Loan Losses .............................      52,675       67,052       15,764       39,309
Other Operating Income ................................     176,538      172,081      138,152      137,001
Other Operating Expense ...............................     129,569      105,527      108,068       94,820
                                                          ---------    ---------    ---------    ---------
Income Before Income Taxes
     and Exraordinary Loss ............................      56,449       51,712       47,795       35,360
Income Taxes ..........................................      22,411       20,529       19,293       13,720
                                                          ---------    ---------    ---------    ---------
Income Before Extraordinary
     Loss..............................................      34,038       31,183       28,502       21,640
Extraordinary Loss from
      Early Extinguishment of Debt ....................          --           --       50,808          --
                                                          ---------    ---------    ---------    ---------
Net Income (Loss) .....................................      34,038       31,183      (22,306)      21,640
Preferred Stock
     Dividends ........................................       7,431        7,182        5,448        4,525
Adjustment for the
     Retirement of Series
     B Preferred Stock  ...............................          --           --      101,615           --
                                                          ---------    ---------    ---------    ---------
Net Income (Loss)
     Applicable to
     Common Stockholders ..............................   $  26,607    $  24,001    $(129,369)   $  17,115
                                                          =========    =========    =========    =========

Per Common Share:
Earnings (Loss) per Share:
     Basic (1).........................................   $    0.46    $    0.41    $    2.24    $    0.30
     Diluted (1) ......................................        0.39         0.36         2.24         0.28

Shares used to Compute
     EPS (000's):
     Basic ............................................      57,898       57,878       57,856       57,789
     Diluted (2) ......................................      87,623       87,115       57,856       60,397
Cash Dividends ........................................   $   0.007    $   0.003    $   0.003    $   0.003
Market Prices:
     High .............................................   $   25.88    $   30.75    $   27.17    $   17.95
     Low ..............................................       17.04        16.59        13.50        12.67
     Close ............................................       23.79        19.67        27.17        13.46
</TABLE>

(1)  Earnings per share for the second quarter reflect the $152.4 million
     one-time, non-cash accounting impact from the issuance of the Series C
     Convertible Preferred Stock extinguishing the Series B Preferred, the 12%
     Senior Notes and the ten-year warrants which reduced EPS by $2.59.

(2)  There were options and convertible preferred stock outstanding in the
     second quarter to purchase 3.6 million and 9.3 million common shares,
     respectively. These potential common shares have been excluded from the
     computation of diluted earnings per share for the second quarter because
     their inclusion would have been anti-dilutive.

Stock Data

     The Company's common stock, which is traded under the symbol "MXT," has
been listed on the New York Stock Exchange since May 7, 1999. Prior to its
listing on the New York Stock Exchange, the Company's common stock traded under
the symbol "MTRS" on the Nasdaq Stock Market since the initial public offering
on October 25, 1996. As of March 7, 2001, there were 359 holders of record and
approximately 16,000 beneficial holders of the Company's common stock.




                                       67
<PAGE>
BOARD OF DIRECTORS

Ronald N. Zebeck
Chairman and Chief Executive Officer
Metris Companies Inc.

Lee R. Anderson, Sr.
Chairman and CEO
API Group, Inc.

C. Hunter Boll
Managing Director
Thomas H. Lee Partners, L.P.

John A. Cleary
President
John Cleary Enterprises

Thomas M. Hagerty
Managing Director
Thomas H. Lee Partners, L.P.

David V. Harkins
President
Thomas H. Lee Partners, L.P.

Walter M. Hoff
Chief Executive Officer
NDC Health Information Services

Thomas H. Lee
General Partner
Thomas H. Lee Partners, L.P.

Derek V. Smith
President and CEO
ChoicePoint, Inc.

Edward B. Speno
Retired, Former Executive Vice President
Credit Card Service Corporation

Frank D. Trestman
President
Trestman Enterprises

Audit Committee

Frank D. Trestman,
Chairman
Walter M. Hoff
Derek V. Smith
Edward B. Speno

Compensation Committee

John A. Cleary, Chairman
Lee R. Anderson, Sr.
David V. Harkins
Frank D. Trestman

EXECUTIVE OFFICERS

Ronald N. Zebeck
Chairman and Chief Executive Officer

David D. Wesselink
Vice Chairman

Douglas L. Scaliti
President, Chief Operating Officer, Enhancement Products

Jean C. Benson
Executive Vice President, Finance, Corporate Controller

Joseph A. Hoffman
Executive Vice President, Consumer Credit Card Marketing/Operations

Matthew S. Melius
Executive Vice President, Portfolio Marketing

David R. Reak
Executive Vice President, Risk Management/Recovery

Benson Woo
Chief Financial Officer

Ralph A. Than
Senior Vice President, Treasurer

<PAGE>

Lorraine E. Waller
Senior Vice President, General Counsel and Secretary

OTHER OFFICERS

Patrick J. Fox
Executive Vice President, Business Development

Jon Mendel
Executive Vice President, Human Resources

CORPORATE INFORMATION
Corporate Offices

Executive Offices
10900 Wayzata Blvd., Minnetonka, Minnesota 55305-1534
(952) 525-5020
www.metriscompanies.com

Direct Merchants Credit Card Bank, National Association
6909 East Greenway Parkway
Scottsdale, Arizona 85254

Annual Meeting

Wednesday, May 9, 2001 10 a.m., Metris Executive Offices, 10900 Wayzata
Blvd., Minnetonka, Minnesota 55305-1534

Stock Listing

New York Stock Exchange
Stock Symbol: MXT

Independent Auditors
KPMG LLP
Minneapolis, Minnesota

Transfer Agent and Registrar
Computershare Investor Services
Chicago, Illinois

Form 10-K A copy of the Company's Annual Report on Form 10-K may be
obtained free of charge from the Company's Investor Relations contact:

Mark Van Ert
Vice President Investor Relations
Phone:  (952) 525-5092
Fax:    (952) 593-4733
mark.van.ert@
metriscompanies.com


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