SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported) October 14, 1998
METRIS COMPANIES INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 41-1849591
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
600 South Highway 169, Suite 1800, St. Louis Park MN 55426
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (612) 525-5020
N/A
(Former Name or Former Address, if Changed Since Last Report)
Item 5. Other Events.
This Report is made to file a Third Quarter 1998
Earnings press release issued by the Registrant on October 14,
1998.
Item 7. Financial Statements and Exhibits.
(c) Exhibits:
20.1 Press release dated October 14, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly
authorized.
METRIS COMPANIES INC.
Date: October 14, 1998 By:\s\ Z. Jill Barclift
Name: Z. Jill Barclift
Title: Vice President, General Counsel
EXHIBIT INDEX
The following exhibits are filed herewith:
Exhibit No.
20.1 Press release dated October 14, 1998.
Investor Relations
Alfred A. Galgano
Director, Investor Relations
(612) 593-4820
(612) 593-4733
Metris Web Site Address
www.metriscompanies.com
METRIS REPORTS THIRD QUARTER NET INCOME UP 61 PERCENT
SIX MONTH NET INCOME UP 45 PERCENT
ST. LOUIS PARK, Minn. (October 14, 1998) - Metris Companies Inc.
(Nasdaq: MTRS) today reported net income for the third quarter ended September
30, 1998, of $17.0 million, or $0.85 per share, up 61 percent from $10.5
million, or $0.52 per share for the third quarter of 1997. Net income for
the nine months ended September 30, 1998 was $40.6 million, or $2.03 per
share, an increase of 45 percent over net income of $28.0 million, or $1.38
per share, for the same period in 1997.
"We continue to deliver solid earnings from each of our business lines,"
said Ronald N. Zebeck, president and chief executive officer of Metris. "Our
business continues to grow and we remained focused on our fundamental
strategies of risk-based pricing, strong reserving practices and prudent
accounting."
For the third quarter of 1998, the managed net interest margin was 11.9
percent compared with 12.7 percent for the second quarter of 1998 and 13.4
percent for the third quarter of 1997. Included in the third quarter results
were one-time, non-recurring expenses related to the termination of the old
Fingerhut Companies, Inc.(NYSE:FHT) guaranteed bank credit facility and the
old asset-backed commercial paper program, which historically was shared with
Fingerhut. Without these one-time costs, the net interest margin would have
been 12.3 percent in the third quarter. Financing costs as a percent of
borrowings for the third quarter of 1998 were 6.7 percent, reflecting the
previously mentioned one-time expenses, compared with 6.2 percent in the
second quarter of 1998 and 6.2 percent in the third quarter of 1997.
Credit card charge volume increased 83 percent to over $1.1 billion in the
third quarter of 1998 compared to $0.6 billion in the third quarter of 1997.
For the first nine months of 1998, credit card charge volume was
approximately $2.7 billion, a 61 percent increase over the same period in
1997.
The managed credit card loan portfolio grew by 9 percent, or $362 million,
during the third quarter bringing the portfolio to over $4.2 billion at
September 30, 1998. The third quarter receivables growth was primarily due
to the impact of our second quarter marketing campaign. Credit card accounts
totaled approximately 2.5 million at September 30, 1998.
The managed net charge-off rate was 10.5 percent for the third quarter of
1998, compared to 10.6 percent for the prior quarter and 8.7 percent for the
third quarter of 1997. The purchase accounting related to the acquired
portfolios favorably impacted the charge-off rates, for the third and second
quarters of 1998, by approximately 30 basis points each quarter. For the nine
months ended September 30, 1998, the managed net charge-off rate was 10.0
percent compared to 8.7 percent for the first nine months of 1997.
The managed delinquency rate (over 30 days contractually past due) was 7.8
percent at September 30, 1998, compared to 7.4 percent at June 30, 1998, and
6.4 percent at September 30, 1997.
The managed loan loss reserve at September 30, 1998, was $350.9 million
or 107 percent of loans 30 days or more past due. This compares to a managed
loan loss reserve of $324.2 million at June 30, 1998, or 112 percent of loans
30 days or more contractually past due. The provision for loan losses on a
managed basis was $134.7 million and $390.1 million for the three and nine-
month periods ended September 30, 1998, respectively, compared to $88.0
million and $210.9 million for the same periods in 1997, respectively. These
increases primarily reflect higher credit card loan balances as well as an
increase in managed net charge-offs.
Managed credit card fees, interchange and other credit card income
increased 73 percent to $65.8 million for the third quarter of 1998, from $38.1
million in the third quarter of 1997. For the nine-month period ended
September 30, 1998, managed credit card fees, interchange and other credit
card income was $180.1 million compared to $106.9 million for the same period
in 1997. These increases were primarily due to the growth in the number of
total accounts and loans in the managed credit card portfolio, as well as the
continued impact from the first quarter 1998 policy change in the billing of
overlimit fees.
At September 30, 1998, combined fee-based active members totaled 3.6
million, a 40 percent increase from September 30, 1997. Combined fee-based
services revenues (including net extended service plan revenues) increased to
$26.4 million for the third quarter of 1998. This represents a 64 percent
increase over the third quarter of 1997 revenue of $16.1 million. This
increase is driven by the continued successful performance of our debt waiver
product and the change in operations for the extended service plan business
whereby Metris assumed the responsibility for claims processing and
underwriting on contracts sold on or after January 1, 1997. As a result of
this operating change, all extended service plan revenues and the related
operating margins have been deferred and are recognized over the life of the
related extended service plan contracts. PurchaseShieldsm revenues also
contributed to the increase in combined fee-based services revenues.
For the nine-month period ended September 30, 1998, combined fee-based services
revenues were $77.5 million, up 83 percent from $42.3 million for the same
period in 1997.
The revenues reported for the three and nine-month periods ended
September 30, 1998 reflect the Company's recently announced change in revenue
recognition. This change resulted from the Securities and Exchange Commission
Staff (SEC) concluding that no revenue should be recognized until the
expiration of the fee-based services membership refund period. This change
was a cumulative one-time reduction in revenues of approximately $3.0 million
and a corresponding reduction in expenses of approximately $3.1 million, or a
$68,000 increase in net income.
Other operating expenses were $50.7 million in the third quarter of 1998, up
from $27.9 million in the third quarter of 1997. The increased expenses
reflect the continued investment in the infrastructure of the company and
additional expenses due to the increased number of accounts. The managed
operating efficiency ratio improved to 23.8 percent in the third quarter of
1998 from 25.6 percent in the second quarter of 1998, and is 2.9 percentage
points higher than the 20.9 percent in the third quarter of 1997. Other
operating expenses were $156.7 million for the nine months ended September
30, 1998, compared to $94.6 million for the same period in 1997, and the
managed operating efficiency ratio improved to 25.6 percent from 27.0 percent
in the prior year.
The Company's independent auditors, KPMG Peat Marwick LLP, concur
with the Company that its accounting policies are in accordance with generally
accepted accounting principles. Based on the guidance the SEC has provided to
another fee-based services company, capitalizing and amortizing qualifying
costs related to direct-response advertising continues to be in accordance
with generally accepted accounting principles. Therefore, Metris does not
need to take the contemplated $14.1 million one-time, cumulative, non-cash
charge to earnings. Our independent auditors, KPMG Peat Marwick concur with
this treatment.
Return on average stockholders' equity was 32.0 percent for the third
quarter of 1998, compared to 25.9 percent for the second quarter of 1998 and
25.8 percent for the third quarter of 1997.
On September 25, 1998, Fingerhut distributed its remaining shares of Metris
common stock to its shareholders, in a tax-free distribution.
Metris Companies Inc. is an information-based direct marketer of consumer
credit products and fee-based services primarily to moderate income consumers.
Based in St. Louis Park, Minnesota, Metris also has operations in Tulsa,
Oklahoma; Baltimore, Maryland; Champaign, Illinois and Phoenix, Arizona and
currently employs over 1,800 people.
Visit Metris on the Internet at www.metriscompanies.com.
###
This press release contains forward-looking statements. These statements
include statements regarding intent, belief or current expectations of the
Company and its management. You are cautioned that any such forward-looking
statements are not guarantees of future performance and involve a number of
risks and uncertainties that may cause the Company's actual results to differ
materially from the results discussed in the forward-looking statements.
Among the factors that could cause actual results to differ materially from
those indicated by such forward-looking statements are: the Company's limited
operating history as a stand-alone entity; the Company's limited experience
with respect to originating and servicing credit card accounts, including
limited delinquency, default and loss experience; the lack of seasoning of
its credit card portfolio, which makes the predictability of delinquency and
loss levels more difficult; risks associated with unsecured credit
transactions, particularly to moderate income consumers; risks
associated with acquired portfolios; interest rate risks; dependence on the
securitization of the Company's credit card loans or the capital markets to
fund operations; general economic conditions affecting consumer income, which
may increase consumer bankruptcies, defaults and delinquencies; state and
federal laws and regulations, including consumer and debtor protection laws;
and the highly competitive industry in which the Company operates. Each of
these factors is more fully discussed in Exhibit 99 to the Company's Annual
Report on Form 10-K, for the fiscal year ended December 31, 1997. Reference
to this Cautionary Statement or Exhibit 99 in the context of a forward-
looking statement or statements shall be deemed to be a statement that any
one or more of these factors may cause actual results to differ materially
from those anticipated in such forward-looking statement or statements.
METRIS COMPANIES INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(dollars in thousands, except per share data) (unaudited)
September 30, December 31,
1998 1997
Assets
Cash and due from banks $ 19,049 $ 21,006
Federal funds sold 13,713 27,089
Short-term investments 473 128
Cash and cash equivalents 33,235 48,223
Credit card loans:
Loans held for securitization 38,916 8,795
Retained interests in loans securitized 546,419 471,831
Less: Allowance for loan losses 48,510 32,039
Net credit card loans 536,825 448,587
Premises and equipment, net 20,945 15,464
Accrued interest and fees receivable 5,297 4,310
Prepaid expenses and deferred charges 34,904 18,473
Deferred income taxes 129,216 80,787
Customer base intangible 42,176 36,752
Other assets 25,090 20,625
Total assets $ 827,688 $ 673,221
Liabilities
Short-term borrowings 214,000 144,000
Long-term debt 100,896 100,000
Accounts payable 32,174 35,356
Other payables due to credit card
securitizations, net 153,221 134,559
Current income taxes payable to FCI 16,761 9,701
Deferred income 69,113 49,204
Accrued expenses and other liabilities 25,167 24,363
Total liabilities 611,332 497,183
Stockholders' Equity
Preferred stock, par value $.01 per share;
authorized 10,000,000 shares, none
issued or outstanding
Common stock, par value $.01; authorized
100,000,000 shares, issued and
outstanding 19,242,000 and19,225,000
shares, respectively 192 192
Paid-in capital 107,331 107,059
Retained earnings 108,833 68,787
Total stockholders' equity 216,356 176,038
Total liabilities and stockholders'
equity $ 827,688 $ 673,221
METRIS COMPANIES INC. AND SUBSIDIARIES
Consolidated Statements of Income
(in thousands, except per share data) (unaudited)
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Interest Income
<S> <C> <C> <C> <C>
Credit card loans $ 28,234 $ 16,490 $ 80,494 $ 42,645
Federal funds sold 197 515 977 1,270
Other 133 210 902 568
Total interest income 28,564 17,215 82,373 44,483
Interest expense 8,902 2,398 21,733 5,930
Net Interest Income 19,662 14,817 60,640 38,553
Provision for loan losses 17,154 11,106 58,586 28,589
Net interest income after
provision for loan losses 2,508 3,711 2,054 9,964
Other Operating Income
Net extended service plan revenues 6,333 1,628 18,093 3,249
Net securitization and credit card
servicing income 30,499 14,706 95,454 59,533
Credit card fees, interchange
and other credit card income 18,961 10,488 47,707 28,324
Fee-based product revenues 20,066 14,457 59,408 39,082
75,859 41,279 220,662 130,188
Other Operating Expense
Credit card account and other product
solicitation and marketing expenses 7,818 5,942 29,245 22,419
Employee compensation 12,940 8,318 42,612 24,455
Data processing services and
communications 8,822 3,628 25,792 12,893
Third-party servicing expenses 2,895 2,233 7,953 7,972
Warranty and debt waiver underwriting
and claims servicing expenses 3,059 1,689 8,479 4,077
Credit card fraud losses 1,034 1,121 3,354 2,700
Other 14,162 4,925 39,231 20,117
50,730 27,856 156,666 94,633
Income Before Income Taxes 27,637 17,134 66,050 45,519
Income taxes 10,641 6,597 25,430 17,525
Net Income $ 16,996 $ 10,537 $ 40,620 $ 27,994
Earnings per share:
Basic $ .88 $ .55 $ 2.11 $ 1.46
Diluted .85 .52 2.03 1.38
Shares used to compute earnings per share:
Basic 19,231 19,225 19,227 19,225
Diluted 20,063 20,299 19,973 20,224
</TABLE>
METRIS COMPANIES INC. AND SUBSIDIARIES
Financial & Statistical Summary
(in thousands, except Earnings per share and stock price) (unaudited)
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Income Statement Data (Managed Basis):
<S> <C> <C> <C> <C> <C> <C>
Net interest income $ 123,342 $ 78,806 $ 362,909 $ 204,838
Provision for loan losses 134,736 87,997 390,140 210,919
Other operating income 89,761 54,181 249,947 146,233
Other operating expense 50,730 27,856 156,666 94,633
Income before income taxes $ 27,637 $ 17,134 $ 66,050 $ 45,519
Tax rate 38.5% 38.5% 38.5% 38.5%
Net income $ 16,996 $ 10,537 $ 40,620 $ 27,994
Per Share Statistics:
Earning per share (diluted) $ .85 $ .52 $ 2.03 $ 1.38
Stock price (period end) 46 5/8 43 5/16 46 5/8 43 5/16
Shares outstanding (period end) 19,242 19,225 19,242 19,225
Shares used to compute EPS (diluted) 20,063 20,299 19,973 20,224
Credit Card Data (Managed Basis):
Period-end accounts 2,467 1,802 2,467 1,802
Period-end managed loans $ 4,242,768 $ 2,683,877 $ 4,242,768 $ 2,683,877
Average loans 4,082,805 2,274,916 3,799,040 1,979,957
Average interest-earning assets 4,107,219 2,328,429 3,845,677 2,025,808
Average assets 4,256,450 2,334,105 3,952,455 2,034,598
Average stockholders' equity 210,422 162,284 194,300 152,748
Net interest margin 11.9% 13.4% 12.6% 13.5%
Return on average assets 1.6% 1.8% 1.4% 1.8%
Return on average equity 32.0% 25.8% 28.0% 24.5%
Loan loss reserves $ 350,864 $ 190,626 $ 350,864 $ 190,626
Reserves as a percent of 30-day plus
receivables 107% 112% 107% 112%
Delinquency ratio (over 30 days) 7.8% 6.4% 7.8% 6.4%
Loan loss reserve ratio 8.3% 7.1% 8.3% 7.1%
Net charge-off ratio 10.5% 8.7% 10.0% 8.7%
Extended Service Plan Data:
Fee-based product revenues $ 20,066 $ 14,457 $ 59,407 $ 39,082
Net extended service plan revenues 6,333 1,628 18,093 3,249
Warrantable product unit penetration rates 25.0% 27.2% 26.1% 26.8%
</TABLE>
