UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
Commission file number: 001-12351
METRIS COMPANIES INC.
(Exact name of registrant as specified in its charter)
Delaware 41-1849591
(State of Incorporation) (I.R.S. Employer Identification No.)
600 South Highway 169, Suite 1800, St. Louis Park, Minnesota 55426
(Address of principal executive offices)
(612) 525-5020
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _____
As of April 30, 1999, 19,291,000 shares of the registrant's common stock, par
value $.01 per share, were outstanding.
<PAGE>
METRIS COMPANIES INC.
FORM 10-Q
TABLE OF CONTENTS
March 31, 1999
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (unaudited):
Consolidated Balance Sheets......................3
Consolidated Statements of Income................4
Consolidated Statements of Cash Flows............5
Notes to Consolidated Financial Statements.......6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations......................................17
Item 3. Quantitative and Qualitative Disclosures
About Market Risk...............................29
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...........................................30
Item 2. Changes in Securities.......................................31
Item 3. Defaults Upon Senior Securities.............................31
Item 4. Submission of Matters to a Vote of Security Holders.........31
Item 5. Other Information...........................................32
Item 6. Exhibits and Reports on Form 8-K.......................32
Signatures............................................ 33
<PAGE>
Part I. Financial Information
<TABLE>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
METRIS COMPANIES INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands, except per share data) (Unaudited)
March 31, December 31,
1999 1998
---------------- -------------
Assets:
<S> <C> <C>
Cash and due from banks ................................................ $ 15,844 $ 22,114
Federal funds sold ..................................................... 90,796 15,060
Short-term investments ................................................. 9,957 173
------- ------
Cash and cash equivalents ......................................... 116,597 37,347
------- ------
Retained interests in loans securitized ................................ 844,582 753,469
Less: Allowance for loan losses .............................. 450,672 393,283
------- ------
Net retained interests in loans securitized ....................... 393,910 360,186
------- ------
Loans held for securitization .......................................... 12,740 3,430
Property and equipment, net ............................................ 22,400 21,982
Accrued interest and fees receivable ................................... 8,350 6,009
Prepaid expenses and deferred charges .................................. 67,780 59,104
Deferred income taxes .................................................. 178,815 153,021
Customer base intangible ............................................... 71,678 81,892
Other receivables due from credit card
securitizations, net ................................................ 166,198 185,935
Other assets ........................................................... 38,097 36,813
------- ------
Total assets ...................................................... $ 1,076,565 $ 945,719
=========== ===========
Liabilities:
Debt ................................................................... $ 373,897 $ 310,896
Accounts payable ....................................................... 53,201 19,091
Current income taxes payable ........................................... 36,520 31,783
Deferred income ........................................................ 125,195 124,892
Accrued expenses and other liabilities ................................. 33,090 26,075
------- ------
Total liabilities ................................................. 621,903 512,737
------- ------
Stockholders' Equity:
Preferred stock, par value $.01 per share;
10,000,000 shares authorized, 552,013 and 539,866 shares issued and
outstanding, respectively ......................................... 205,625 201,100
Common stock, par value $.01 per share; 100,000,000 shares authorized,
19,261,945 and 19,259,750 shares respectively, issued and outstanding,
respectively ...................................................... 193 193
Paid-in capital ........................................................ 107,847 107,615
Retained earnings ...................................................... 140,997 124,074
------- ------
Total stockholders' equity ........................................ 454,662 432,982
------- ------
Total liabilities and stockholders' equity ........................ $ 1,076,565 $ 945,719
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except per share data) (Unaudited)
<TABLE>
Three Months Ended
March 31,
1999 1998
---- ----
Interest Income:
<S> <C> <C>
Credit card loans and retained interests in loans securitized ..... $ 41,277 $ 25,885
Federal funds sold ................................................ 207 481
Other ............................................................. 379 421
------- ------
Total interest income ........................................ 41,863 26,787
Interest expense .................................................. 9,375 6,643
------- ------
Net Interest Income ............................................... 32,488 20,144
Provision for loan losses ......................................... 39,309 20,042
------- ------
Net interest income (expense) after provision for loan losses (6,821) 102
------- ------
Other Operating Income:
Net securitization and credit card servicing income ............... 76,998 34,907
Credit card fees, interchange and other credit card income ........ 21,309 13,021
Fee-based services revenues ....................................... 37,536 24,568
------- ------
135,843 72,496
------- ------
Other Operating Expense:
Credit card account and other product
solicitation and marketing expenses ......................... 22,945 10,150
Employee compensation ............................................. 23,318 15,088
Data processing services and communications ....................... 10,282 8,857
Third-party servicing expenses .................................... 3,646 2,571
Warranty and debt waiver underwriting and claims servicing expenses 3,980 2,875
Credit card fraud losses .......................................... 1,263 1,316
Other ............................................................. 28,228 13,491
------- ------
93,662 54,348
------- ------
Income Before Income Taxes ........................................ 35,360 18,250
Income taxes ...................................................... 13,720 7,026
------- ------
Net Income ........................................................ 21,640 11,224
Preferred stock dividends ......................................... 4,525
------- ------
Net Income Available To Common Stockholders ....................... $ 17,115 $ 11,224
========= =========
Earnings Per Share:
Basic ............................................................. $ .89 $ .58
Diluted ........................................................... $ .85 $ .55
Shares used to compute earnings per share:
Basic ............................................................. 19,259 19,225
Diluted ........................................................... 20,132 20,296
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands) (Unaudited)
Three Months Ended
March 31,
1999 1998
--------- -----------
Operating Activities:
Net income ........................................ $ 21,640 $ 11,224
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ................ 20,504 8,917
Change in allowance for loan losses .......... 57,389 47,018
Changes in operating assets and liabilities:
Accrued interest and fees receivable ..... (2,341) (1,260)
Prepaid expenses and deferred charges .... (14,270) (6,785)
Deferred income taxes .................... (25,794) (24,535)
Accounts payable and accrued expenses .... 41,125 (3,100)
Other receivables due from credit card
securitizations, net ............ 19,737 3,609
Current income taxes payable ............. 4,737 22,825
Deferred income .......................... 303 8,918
Other .................................... (4,946) 685
--------- --------
Net cash provided by operating activities ......... 118,084 67,516
--------- --------
Investing Activities:
Proceeds from/repayments of securitized loans ..... (302,597) 33,549
Net loans originated or collected ................. 202,174 (69,747)
Additions to premises and equipment ............... (1,452) (1,961)
--------- --------
Net cash used in investing activities ............. (101,875) (38,159)
--------- --------
Financing Activities:
Net increase (decrease)in debt .................... 63,001 (14,000)
Cash dividends paid ............................... (192) (192)
Net proceeds from issuance of common stock ........ 232
--------- --------
Net cash provided by (used in) financing activities 63,041 (14,192)
--------- --------
Net increase in cash and cash equivalents ......... 79,250 15,165
Cash and cash equivalents at beginning of period .. 37,347 48,223
--------- --------
Cash and cash equivalents at end of period ........ $ 116,597 $ 63,388
========= =========
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Metris
Companies Inc. ("MCI") and its subsidiaries (collectively, the "Company")
including Direct Merchants Credit Card Bank, N.A. ("Direct Merchants Bank"). The
Company is an information-based direct marketer of consumer credit products and
fee-based services primarily to moderate-income consumers.
Prior to September 1998, the Company was 83% owned by Fingerhut
Companies, Inc. ("FCI"). On September 25, 1998, FCI distributed the remaining
shares of the Company to shareholders of FCI in a tax free distribution (the
"Spin Off").
All significant intercompany balances and transactions have been
eliminated in consolidation. Certain prior year amounts have been reclassified
to conform with the current year's presentation.
Interim Financial Statements
The unaudited interim consolidated financial statements and related
unaudited financial information in the footnotes have been prepared in
accordance with generally accepted accounting principles and the rules and
regulations of the Securities and Exchange Commission ("SEC") for interim
financial statements. Such interim financial statements reflect all adjustments
consisting of normal recurring accruals which, in the opinion of management, are
necessary to present fairly the consolidated financial position of the Company
and the results of its operations and its cash flows for the interim periods.
These consolidated financial statements should be read in conjunction with the
financial statements and the notes thereto contained in the Company's annual
report on Form 10-K for the fiscal year ended December 31, 1998. The nature of
the Company's business is such that the results of any interim period may not be
indicative of the results to be expected for the entire year.
Pervasiveness of Estimates
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles, which require management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements as well as the reported amount of revenues
and expenses during the reporting periods. Actual results could differ from
these estimates.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Securitization, Retained Interests in Loans Securitized and Securitization
Income
The Company securitizes and sells a significant portion of its credit
card loans to both public and private investors through the Metris Master Trust
(the "Trust") and third-party bank sponsored, multi-seller receivables conduits
(the "Conduits"). The Company retains participating interests in the credit card
loans under "Retained interests in loans securitized" on the consolidated
balance sheets. The Company's retained interests in loans securitized are
subordinate to the interests of investors in the Trust and Conduit portfolios.
Although the Company continues to service the securitized credit card accounts
and maintains the customer relationships, these transactions are treated as
sales for financial reporting purposes and the associated loans are not
reflected on the consolidated balance sheets.
The sales of these loans have been recorded in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
Upon sale, the sold credit card loans are removed from the balance sheet and the
related financial and servicing assets controlled and liabilities incurred are
initially measured at fair value, if practicable. SFAS 125 also requires that
servicing assets and other retained interests in the transferred assets be
measured by allocating the previous carrying amount between the assets sold, if
any, and retained interests, if any, based on their relative fair values at the
date of the transfer.
The securitization and sale of credit card loans changes the Company's
interest in such loans from lender to servicer, with a corresponding change in
how revenue is reported in the statements of income. For securitized and sold
credit card loans, amounts that otherwise would have been recorded as interest
income, interest expense, fee income and provision for loan losses are instead
reported in other operating income as "Net securitization and credit card
servicing income." The Company has various receivables from the Trust or Conduit
and other assets as a result of securitizations, including: amounts deposited in
an investor reserve account held by the Trust for the benefit of the Trust's
security holders; amounts due from interest rate caps, swaps and floors; accrued
interest and fees on the securitized receivables; servicing fee receivables; and
various other receivables. These amounts are reported as "other receivables due
from credit card securitizations, net" on the consolidated balance sheets. The
provision for loan losses reflected on the statements of income in "Net
securitization and credit card servicing income" was $139.5 million and $106.0
million for the three month periods ended March 31, 1999 and 1998, respectively.
Provisions for loan losses are made in amounts necessary to maintain
the allowance at a level estimated to be sufficient to absorb probable future
losses of principal and earned interest, net of recoveries, inherent in the
existing loan portfolio, effectively reducing the Company's retained interests
in loans securitized to a fair value presentation.
Statements of Cash Flows
Cash paid for interest during the three month periods ended March 31,
1999 and 1998, was $3.5 million and $2.0 million, respectively. Cash paid for
income taxes for the same periods was $34.6 million and $8.7 million,
respectively.
<PAGE>
Earnings Per Share
The following table presents the computation of basic and diluted
weighted average shares used in the per share calculations:
Three Months Ended
March 31,
1999 1998
---- ----
(In thousands, except per share amounts)
Net income .................................. $21,640 $11,224
Preferred dividends ......................... 4,525
------- -------
Net income available to common stockholders . $17,115 $11,224
======= =======
Weighted average common shares outstanding .. 19,259 19,225
Adjustments for dilutive securities:
Assumed exercise of outstanding stock options 873 1,071
------- -------
Diluted common shares ....................... 20,132 20,296
======= =======
Earnings per share:
Basic .................................. $ .89 $ .58
Diluted ................................ $ .85 $ .55
NOTE 3 - ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is as follows:
Three Months Ended
March 31,
1999 1998
---- ----
(In thousands)
Balance at beginning of period ............. $393,283 $244,084
Provision for loan losses .................. 39,309 20,042
Provision for loan losses (1) .............. 139,533 105,993
Loans charged-off .......................... 128,163 81,664
Recoveries ................................. 6,710 2,647
------- ------
Net loan charge-offs ....................... 121,453 79,017
------- ------
Balance at end of period ................... $450,672 $291,102
======== ========
(1) Amounts are included in "Net securitization and credit card servicing
income."
NOTE 4 - SEGMENTS
The Company is organized based on the products and services that it
offers. Under this organizational structure, the Company operates in two
principal areas: consumer credit products and fee-based services. The Company's
primary consumer credit products are unsecured credit cards, including the
Direct Merchants Bank MasterCard(R) and Visa(R). The Company's credit card
accounts include customers obtained from the Fingerhut Database and other
customers for whom general credit bureau information is available.
The Company markets its fee-based services, including (i) debt waiver
protection for unemployment, disability, and death, (ii) membership programs
such as card registration, purchase protection and other club memberships, and
(iii) third-party insurance, directly to its credit card customers and customers
of third parties. The Company currently administers its extended service plans
sold through a third-party retailer, and the customer pays the retailer
directly. In addition, the Company develops customized targeted mailing lists
from information contained in the Company's databases for use by unaffiliated
companies in their own product solicitation efforts that do not directly compete
with those of the Company.
The information in the following tables is derived directly from
internal segment reporting used for management purposes. The expenses, assets
and liabilities attributable to corporate functions are not allocated to the
operating segments. There were no operating assets located outside of the United
States for the periods presented.
The segment information reported below is presented on a managed basis.
Management uses this basis to review segment performance and to make operating
decisions. To do so, the income statement and balance sheet are adjusted to
reverse the effects of securitizations. Presentation on a managed basis is not
in conformity with generally accepted accounting principles. The elimination
column in the segment table includes adjustments to present the information on
an owned basis as reported in the financial statements of this quarterly report.
Employee compensation, data processing services and communications,
third party servicing expenses, and other expenses including occupancy,
depreciation and amortization, professional fees, and other general and
administrative expenses have not been allocated to the operating segments. These
expenses are included in the reconciliation of the income before income taxes
for the reported segments to the consolidated total. The Company does not
allocate capital expenditures for leasehold improvements, capitalized software
and furniture and equipment to operating segments.
The fee-based services operating segment pays a commission to the
consumer credit products segment for successful marketing efforts to the
consumer credit products segment's cardholders at a rate similar to those paid
to the Company's other third parties. The fee-based services segment reports
interest income and the consumer credit products segment reports interest
expense at the Company's weighted average borrowing rate for the excess cash
flow generated by the fee-based services segment and used by the consumer credit
products segment to fund the growth of cardholder balances.
<TABLE>
Three Months Ended March 31, 1999
Consumer Credit Fee-Based
Products Services Reconciliation (a) Consolidated
(In thousands)
<S> <C> <C> <C> <C>
Interest revenue ......... $ 257,029 $ 847 $ (216,013) (b) $ 41,863
Interest expense ......... 69,474 (60,099) (c) 9,375
------ ------- ------- -----
Net interest income .... 187,555 847 (155,914) 32,488
Other revenue ............ 81,926 37,536 16,381 135,843
Total revenue ............ 338,955 38,383 (199,632) 177,706
Income before income taxes 79,921(d) 20,913 (d) (65,474) (e) 35,360
Income taxes ............. 13,720 13,720
Total assets ............. $5,118,901 $ 62,734 $ (4,105,070) (f) $1,076,565
</TABLE>
<PAGE>
<TABLE>
Three Months Ended March 31, 1998
Consumer Credit Fee-Based
Products Services Reconciliation(a) Consolidated
(In thousands)
<S> <C> <C> <C> <C>
Interest revenue ......... $ 174,859 $ $ (148,072) $ 26,787
Interest expense ......... 53,824 (47,181) 6,643
------ ------- ------- -----
Net interest income .... 121,035 (100,891) 20,144
Other revenue ............ 53,030 24,568 (5,102) 72,496
Total revenue ............ 227,889 24,568 (153,174) 99,283
Income before income taxes 40,591 (d) 17,666(d) (40,007) (e) 18,250
Income taxes ............. 7,026 7,026
Total assets ............. $3,544,718 $ 33,136 $ (3,013,518) (f) $ 564,336
</TABLE>
(a) The reconciliation column includes: intercompany eliminations; amounts not
allocated to segments; and adjustments to the amounts reported on a managed
basis to reflect the effects of securitization.
(b) The reconciliation to consolidated owned interest revenue includes the
elimination of $0.8 million of intercompany interest received by the fee-based
services segment from the consumer credit products segment for the three
months ended March 31, 1999.
(c) The reconciliation to consolidated owned interest expense includes the
elimination of $0.8 million of intercompany interest paid by the consumer
credit products segment to the fee-based services segment for the three months
ended March 31, 1999.
(d) Income before income taxes includes intercompany commissions paid by the
fee-based services segment to the consumer credit products segment for
successful marketing efforts to consumer credit products cardholders of $0.7
million and $0.9 million for the three months ended March 31, 1999 and 1998,
respectively.
(e) The reconciliation to the owned income before income taxes includes:
unallocated costs related to employee compensation; data processing and
communications; third party servicing expenses; and other expenses. The
majority of these expenses, although not allocated for the internal segment
reporting used by management, relate to the consumer credit products segment.
(f) Total assets include the assets attributable to corporate functions not
allocated to operating segments and the removal of investors interests in
securitized loans to present total assets on an owned basis.
<PAGE>
NOTE 5 - SUBSEQUENT EVENT
On May 10, 1999, the Company announced that it had entered into a
definitive agreement with GE Capital ("GE"), a unit of General Electric Company
to acquire a portfolio of approximately 563,000 active accounts and
approximately $1.3 billion of credit card receivables. The consideration to be
paid by the Company to GE will be based on the par value of the receivables in
the GE portfolio at the time of the closing, subject to certain adjustments. The
Company intends to finance the GE portfolio acquisition with proceeds from the
sale of the portfolio's credit card receivables to one or more conduits. The GE
portfolio acquisition is expected to close in the second quarter of 1999.
NOTE 6 - DEBT
On June 30, 1998, the Company executed a $200 million, three-year
revolving credit facility and a $100 million five-year term loan (the "New
Credit Facility") with a syndicate of banks and money market mutual funds. This
agreement became effective upon the Spin Off from FCI on September 25, 1998. The
New Credit Facility which is not guaranteed by FCI replaced the Company's $300
million, five-year revolving credit facility (the "Old Credit Facility"). The
New Credit Facility is secured by receivables and general intangibles of the
Company and Metris Direct, Inc. and all subsidiary stock other than non-United
States organized corporations and guaranteed by Metris Direct, Inc. Financial
covenants in the New Credit Facility include, but are not limited to,
requirements concerning minimum net worth, minimum tangible net worth to net
managed receivables and tangible net worth plus reserves to delinquent
receivables. At March 31, 1999, the Company was in compliance with all financial
covenants under this agreement. At March 31, 1999 and December 31, 1998, the
Company had outstanding borrowings of $107 million and $110 million,
respectively, under the New Credit Facility. The weighted average interest rates
on the borrowings at March 31, 1999 and December 31, 1998, were 8.0% and 7.9%,
respectively.
Beginning in the first quarter 1999, Direct Merchants Bank began
issuing jumbo certificates of deposit ("CDs"). These CDs are issued in
increments of $100,000 and are sold through third party investment banks. As of
March 31, 1999, $65.7 million of CDs were outstanding with maturities ranging
from six months to two years and fixed interest rates ranging from 4.9% to 5.5%.
In November 1997, the Company issued and sold $100 million of 10%
Senior Notes due 2004 (the "Senior Notes"). The Senior Notes are unconditionally
guaranteed on a senior basis, jointly and severally, by Metris Direct, Inc. (the
"Guarantor"), and all future subsidiaries of the Company that guarantee any of
the Company's indebtedness, including the New Credit Facility. The guarantee is
an unsecured obligation of the Guarantor and ranks pari passu with all existing
and future unsubordinated indebtedness. As part of the Thomas H. Lee Company
investment, the Company issued $100 million in Lee Senior Notes which are
similar in all material respects to the Senior Notes. The Company also has
approximately $0.9 million of debt with local governments to support growth in
those areas.
Metris Direct, Inc. has various subsidiaries which have not guaranteed
the Senior Notes. The following condensed consolidating financial statements of
the Company, the Guarantor subsidiary and the non-guarantor subsidiaries are
presented for purposes of complying with SEC reporting requirements. Separate
financial statements of Metris Direct, Inc. and the non-guaranteeing
subsidiaries are not presented because management has determined that the
subsidiaries' financial statements would not be material to investors.
<PAGE>
METRIS COMPANIES INC.
Supplemental Consolidating Balance Sheets
March 31, 1999
(Dollars in thousands)
Unaudited
<TABLE>
Metris Guarantor Non-Guarantor
Companies Inc. Subsidiaries Subsidiaries Eliminations Consolidated
Assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents ................ $ (589) $ 632 $ 116,554 $ $ 116,597
Net retained interests in loans
securitized ........................... (134) 394,044 393,910
Loans held for securitization ............ 2,152 10,588 12,740
Property and equipment, net .............. 18,510 3,890 22,400
Prepaid expenses and deferred charges 30,105 14,969 22,706 67,780
Deferred income taxes .................... 1,018 17,407 160,390 178,815
Customer base intangible ................. 71,678 71,678
Other receivables due from credit card
securitizations, net .................. 33 166,165 166,198
Other assets ............................. 5,484 7,692 33,271 46,447
Investment in subsidiaries ............... 753,380 768,710 (1,522,090)
------- ------- ------- ---------- -------
Total assets ............................. $ 791,449 $ 827,920 $ 979,286 $(1,522,090) $ 1,076,565
=========== ========== ========== =========== ===========
Liabilities:
Debt ..................................... $ 333,562 $ 10,513 $ 29,822 $ $ 373,897
Accounts payable ......................... 269 13,478 39,454 53,201
Current income taxes payable ............. (33,885) (13,873) 84,278 36,520
Deferred income .......................... 29,335 43,362 52,498 125,195
Accrued expenses and other liabilities 7,506 21,060 4,524 33,090
------- ------- ------- ---------- -------
Total liabilities ........................ 336,787 74,540 210,576 621,903
Total stockholders' equity ............... 454,662 753,380 768,710 (1,522,090) 454,662
------- ------- ------- ---------- -------
Total liabilities and stockholders' equity $ 791,449 $ 827,920 $ 979,286 $(1,522,090) $ 1,076,565
=========== ========== ========== =========== ===========
</TABLE>
<PAGE>
METRIS COMPANIES INC.
Supplemental Consolidating Balance Sheets
December 31, 1998
(Dollars in thousands)
Unaudited
<TABLE>
Metris Guarantor Non-Guarantor
Companies Inc. Subsidiaries Subsidiaries Eliminations Consolidated
Assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents........ $ (5,007) $ (156) $ 42,510 $ $ 37,347
Net retained interests in loans
securitized .................. (97) 360,283 360,186
Loans held for securitization ... 1,876 1,554 3,430
Property and equipment, net ..... 18,243 3,739 21,982
Prepaid expenses and deferred
charges ...................... 30,487 17,833 10,784 59,104
Deferred income taxes ........... 1,049 19,427 132,545 153,021
Customer base intangible ........ 81,892 81,892
Other receivables due from credit
card securitizations, net .... 185,935 185,935
Other assets .................... 5,989 6,989 29,844 42,822
Investment in subsidiaries 756,455 774,986 (1,531,441)
----------- ---------- ---------- ----------- -----------
Total assets .................... $ 790,752 $ 837,322 $ 849,086 $(1,531,441) $ 945,719
=========== ========== ========== =========== ===========
Liabilities:
Debt ............................ $ 317,298 $ 15,021 $ (21,423) $ $ 310,896
Accounts payable ................ 3,140 3,786 12,165 19,091
Current income taxes payable .... 3,722 (5,692) 33,753 31,783
Deferred income ................. 31,753 47,515 45,624 124,892
Accrued expenses and other
liabilities .................. 1,857 20,237 3,981 26,075
----------- ---------- ---------- -----------
Total liabilities ............... 357,770 80,867 74,100 512,737
Total stockholders' equity 432,982 756,455 774,986 (1,531,441) 432,982
----------- ---------- ---------- ----------- -----------
Total liabilities and
stockholders' equity ......... $ 790,752 $ 837,322 $ 849,086 $(1,531,441) $ 945,719
=========== ========== ========== =========== ===========
</TABLE>
<PAGE>
METRIS COMPANIES INC.
Supplemental Consolidating Statements of Income
Three Months Ended March 31, 1999
(Dollars in thousands)
Unaudited
<TABLE>
Metris Guarantor Non-Guarantor
Companies Inc. Subsidiaries Subsidiaries Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Net Interest Income/(Expense) ...............$ (9,367) $ (108) $ 41,963 $ $ 32,488
Provision for loan losses ................... 245 39,064 39,309
----------- ---------- ----------- -----------
Net Interest Income/(Expense) After
Provision for Loan Losses ............... (9,612) (108) 2,899 (6,821)
----------- ---------- ----------- -----------
Other Operating Income:
Net securitization and credit card
servicing income ........................ 1,792 75,206 76,998
Credit card fees, interchange and other income 222 (135) 21,222 21,309
Fee-based services revenues .................. 11,094 26,442 37,536
----------- ---------- ----------- -----------
2,014 10,959 122,870 135,843
----------- ---------- ----------- -----------
Other Operating Expense:
Credit card account and other product
solicitation and marketing expenses ....... 8,160 14,785 22,945
Employee compensation ........................ 21,010 2,308 23,318
Data processing services and communications .. 1,416 8,866 10,282
Third-party servicing expenses
(15,816) 19,462 3,646
Warranty and debt waiver underwriting
and claims servicing expenses ............. 1,347 2,633 3,980
Credit card fraud losses ..................... 3 1,260 1,263
Other ........................................ 400 9,425 18,403 28,228
----------- ---------- ----------- -----------
403 25,542 67,717 93,662
----------- ---------- ----------- -----------
Income/(Loss) Before Income Taxes and
Equity in Income of Subsidiaries .......... (8,001) (14,691) 58,052 35,360
Income taxes ................................. (3,105) (5,913) 22,738 13,720
Equity in income of subsidiaries ............. 26,536 35,314 (61,850)
----------- ---------- ----------- ----------- -----------
Net Income/(Loss) ...........................$ 21,640 $ 26,536 $ 35,314 $ (61,850) $ 21,640
=========== ========== =========== =========== ===========
</TABLE>
<PAGE>
METRIS COMPANIES INC.
Supplemental Consolidating Statements of Income
Three Months Ended March 31, 1998
(Dollars in thousands)
Unaudited
<TABLE>
Metris Guarantor Non-Guarantor
Companies Inc. Subsidiaries Subsidiaries Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Net Interest Income/(Expense) ......... $ (3,085) $ (4,374) $ 27,603 $ $ 20,144
Provision for loan losses ............. 50 19,992 20,042
----------- ---------- ----------- -----------
Net Interest Income/(Expense) After
Provision for Loan Losses .......... (3,135) (4,374) 7,611 102
----------- ---------- ----------- -----------
Other Operating Income:
Net securitization and credit card
servicing income ................... 3,660 31,247 34,907
Credit card fees, interchange and other
income ............................. 45 12,976 13,021
Fee-based services revenues ........... 6,098 18,470 24,568
----------- ---------- ----------- -----------
3,705 6,098 62,693 72,496
----------- ---------- ----------- -----------
Other Operating Expense:
Credit card account and other product
solicitation and marketing expenses 3,935 6,215 10,150
Employee compensation ................. 13,576 1,512 15,088
Data processing services and
communications ..................... 1,360 7,497 8,857
Third-party servicing expenses ........ (266) (11,552) 14,389 2,571
Warranty and debt waiver underwriting
and claims servicing expenses ...... 462 2,413 2,875
Credit card fraud losses .............. 12 1,304 1,316
Other ................................. 137 5,716 7,638 13,491
----------- ---------- ----------- -----------
(117) 13,497 40,968 54,348
----------- ---------- ----------- -----------
Income/(Loss) Before Income Taxes and
Equity in Income of Subsidiaries ... 687 (11,773) 29,336 18,250
Income taxes .......................... 264 (4,649) 11,411 7,026
Equity in income of subsidiaries
10,801 17,925 (28,726)
----------- ---------- ----------- ----------- -----------
Net Income/(Loss) ..................... $ 11,224 $ 10,801 $ 17,925 $ (28,726) $ 11,224
=========== ========== =========== =========== ===========
</TABLE>
<PAGE>
METRIS COMPANIES INC.
Supplemental Condensed Consolidating Statements of Cash Flows
Three Months Ended March 31, 1999
(Dollars in thousands)
Unaudited
<TABLE>
Metris Guarantor Non-Guarantor
Companies Inc. Subsidiaries Subsidiaries Consolidated
Operating Activities:
<S> <C> <C> <C> <C>
Net cash provided by (used in) operating activities $ (41,223) $ (5,210) $ 164,517 $ 118,084
--------- ----------- ----------- -----------
Investing Activities:
Proceeds from/repayments of securitized loans ..... (302,597) (302,597)
Net loans originated or collected ................. (275) 202,449 202,174
Additions to premises and equipment ............... (1,472) 20 (1,452)
--------- ----------- ----------- -----------
Net cash used in investing activities ............. (275) (1,472) (100,128) (101,875)
--------- ----------- ----------- -----------
Financing Activities:
Net (decrease) increase in debt ................... 16,264 (4,508) 51,245 63,001
Cash dividends paid ............................... (192) (804) 804 (192)
Net proceeds from the issuance of common stock 29,846 12,782 (42,396) 232
--------- ----------- ----------- -----------
Net cash provided by financing activities ......... 45,918 7,470 9,653 63,041
--------- ----------- ----------- -----------
Net increase in cash and cash equivalents ......... 4,420 788 74,042 79,250
Cash and cash equivalents at beginning of period .. (5,009) (156) 42,512 37,347
--------- ----------- ----------- -----------
Cash and cash equivalents at end of period ........ $ (589) $ 632 $ 116,554 $ 116,597
========= =========== =========== ===========
</TABLE>
METRIS COMPANIES INC.
Supplemental Condensed Consolidating Statements of Cash Flows
Three Months Ended March 31, 1998
(Dollars in thousands)
Unaudited
<TABLE>
Metris Guarantor Non-Guarantor
Companies Inc. Subsidiaries Subsidiaries Consolidated
Operating Activities:
<S> <C> <C> <C> <C>
Net cash provided by (used in) operating activities $ (4,934) $ (10,437) $ 82,887 $ 67,516
--------- ------------ ------------ -----------
Investing Activities:
Proceeds from/repayments of securitized loans ...... 33,549 33,549
Net loans originated or collected .................. 6,345 (76,092) (69,747)
Additions to premises and equipment ................ (2,306) 345 (1,961)
--------- ------------ ------------ -----------
Net cash provided by (used in) investing activities 6,345 (2,306) (42,198) (38,159)
--------- ------------ ------------ -----------
Financing Activities:
Net (decrease) increase in debt .................... (47,540) (10,828) 44,368 (14,000)
Cash dividends paid ................................ 6,808 (7,000) (192)
Capital contributions .............................. 40,594 22,964 (63,558)
--------- ------------ ------------ -----------
Net cash (used in) provided by financing activities (138) 12,136 (26,190) (14,192)
--------- ------------ ------------ -----------
Net (decrease) increase in cash and cash equivalents 1,273 (607) 14,499 15,165
Cash and cash equivalents at beginning of period ... 337 390 47,496 48,223
--------- ------------ ------------ -----------
Cash and cash equivalents at end of period ......... $ 1,610 $ (217) $ 61,995 $ 63,388
========= ============ ============ ===========
</TABLE>
ITEM 2.
METRIS COMPANIES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information management
believes to be relevant to understanding the financial condition and results of
operations of Metris Companies Inc. and its subsidiaries (collectively, the
"Company"). This discussion should be read in conjunction with the following
documents for a full understanding of the Company's financial condition and
results of operations: Management's Discussion and Analysis of Financial
Condition and Results of Operations in the Company's 1998 Annual Report to
Shareholders; the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998; and the Proxy Statement for the 1999 Annual Meeting of
Shareholders. In addition, this discussion should be read in conjunction with
the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1999,
of which this commentary is a part, and the condensed consolidated financial
statements and related notes thereto.
Results of Operations
Net income for the three months ended March 31, 1999, was $21.6
million, or $.85 per share, up 93% from $11.2 million, or $.55 per share for the
first quarter of 1998. The increase in net income is the result of an increase
in net interest income and other operating income partially offset by increases
in the provision for loan losses and other operating expenses. These increases
are largely attributable to the growth in average managed loans to $5.2 billion
for the first quarter 1999 from $3.6 billion for the first quarter 1998, an
increase of 45%, and growth in total credit card accounts to 2.9 million at
March 31, 1999, from 2.2 million at March 31, 1998.
Managed Loan Portfolio
The Company analyzes its financial performance on a managed loan
portfolio basis. To do so, the income statement and balance sheet are adjusted
to reverse the effects of securitization. The Company's discussion of revenues,
where applicable, and provision for loan losses includes comparisons to amounts
reported in the Company's consolidated statements of income ("owned basis") as
well as on a managed basis.
The Company's managed loan portfolio is comprised of credit card loans
held for securitization, retained interests in loans securitized and the
investors' share of securitized credit card loans. The investors' share of
securitized credit card loans is not an asset of the Company, and therefore, is
not shown on the Company's consolidated balance sheets. The following tables
summarize the Company's managed loan portfolio:
<TABLE>
March 31, December 31, March 31,
1999 1998 1998
---- ---- ----
(Dollars in thousands)
Period-end balances
Credit card loans:
<S> <C> <C> <C>
Loans held for securitization ........... $ 12,740 $ 3,430 $ 29,933
Retained interests in loans securitized . 844,582 753,469 487,506
Investors' interests in securitized loans 4,255,545 4,558,143 3,099,837
--------- --------- ---------
Total managed loan portfolio ............... $5,112,867 $5,315,042 $3,617,276
========== ========== ==========
</TABLE>
<PAGE>
Three Months Ended
March 31,
1999 1998
---- ----
(Dollars in thousands)
Average balances
Credit card loans:
Loans held for securitization ........... $ 62,130 $ 33,540
Retained interests in loans securitized . 761,627 493,565
Investors' interests in securitized loans 4,421,260 3,094,982
--------- ---------
Total managed loan portfolio ............... $5,245,017 $3,622,087
========== ==========
Impact of Credit Card Securitizations
The following table provides a summary of the effects of credit card
securitizations on selected line items of the Company's statements of income for
each of the periods presented, as well as selected financial information on both
an owned and managed loan portfolio basis:
Three Months Ended
March 31,
1999 1998
---- ----
(Dollars in thousands)
Statements of Income (owned basis):
Net interest income .............. $ 32,488 $ 20,144
Provision for loan losses ........ 39,309 20,042
Other operating income ........... 135,843 72,496
Other operating expense .......... 93,662 54,348
------ ------
Income before income taxes ....... $ 35,360 $ 18,250
=============== ============
Adjustments for Securitizations:
Net interest income .............. $ 155,914 $ 100,891
Provision for loan losses ........ 139,533 105,993
Other operating income ........... (16,381) 5,102
Other operating expense
------ ------
Income before income taxes ....... $ $
=============== ============
Statements of Income (managed basis):
Net interest income .............. $ 188,402 $ 121,035
Provision for loan losses ........ 178,842 126,035
Other operating income ........... 119,462 77,598
Other operating expense .......... 93,662 54,348
------ ------
Income before income taxes ....... $ 35,360 $ 18,250
=============== ============
Other Data:
Owned Basis:
Average interest-earning assets ..... $ 889,240 $ 594,393
Return on average assets ............ 8.5% 7.4%
Return on average equity ............ 19.6% 25.0%
Net interest margin (1) ............. 14.8% 13.7%
Managed Basis:
Average interest-earning assets ..... 5,310,500 $ 3,689,375
Return on average assets ............ 1.6% 1.2%
Return on average equity ............ 19.6% 25.0%
Net interest margin (1) ............. 14.4% 13.3%
(1) Net interest margin is equal to annualized net interest income divided by
average interest-earning assets.
Risk-Based Pricing
The Company prices credit card offers based on a prospect's risk
profile prior to solicitation. The Company evaluates a prospect to determine
credit needs, credit risk, and existing credit availability and then develops a
customized offer that includes the most appropriate product, brand, pricing and
credit line. After credit card accounts are opened, the Company periodically
monitors customers' internal and external credit performance and periodically
recalculates behavior, revenue, attrition and bankruptcy predictors. As
customers evolve through the credit life cycle and are regularly rescored, the
lending relationship can evolve to include more competitive (or more
restrictive) pricing and product configurations. These analyses consider the
overall profitability of accounts using both credit information and the
profitability from selling fee-based services to the customers.
Net Interest Income
Net interest income consists primarily of interest earned on the
Company's credit card loans less interest expense on borrowings to fund the
loans. Managed net interest income for the three month period ended March 31,
1999, was $188.4 million compared to $121.0 million for the same period in 1998.
This increase was primarily due to a $1.6 billion increase in average managed
loans over the comparable period in 1998.
Managed net interest margin was 14.4% for the three month period ended
March 31, 1999, compared to 13.3% for the same period in 1998. The first quarter
1999 net interest margin was favorably impacted by the targeted repricing of the
Company's core portfolio and the repricing of the PNC portfolio. Financing costs
as a percent of borrowings for the first quarter of 1999 were 5.9%, compared
with 6.4% in the first quarter of 1998.
<PAGE>
The following table provides an analysis of interest income
and expense, net interest spread, net interest margin and average balance sheet
data for the three month periods ended March 31, 1999 and 1998:
Analysis of Average Balances, Interest and Average Yields and Rates
<TABLE>
Three Months Ended March 31,
1999 1998
------------------------------------- ---------------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
(Dollars in thousands)
Owned Basis
Assets:
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold ................................... $ 31,272 $ 207 2.7% $ 35,409 $ 481 5.5%
Short-term investments ............................... 34,211 379 4.5% 31,879 421 5.4%
Credit card loans and retained interests in loans
securitized ....................................... 823,757 41,277 20.3% 527,105 25,885 19.9%
------- ------ ---- ------- ------ ----
Total interest-earning assets ........................ $ 889,240 $ 41,863 19.1% $ 594,393 $ 26,787 18.3%
Other assets ......................................... 586,818 298,497
Allowances for loan losses ........................... (440,116) (276,475)
-------- --------
Total assets ...................................... $ 1,035,942 $ 616,415
=========== ===========
Liabilities and Equity:
Interest-bearing liabilities ......................... $ 389,288 $ 9,375 9.8% $ 296,089 $ 6,643 9.1%
Other liabilities .................................... 198,472 138,194
-------- --------
Total liabilities .................................... 587,760 434,283
Stockholders' equity ................................. 448,182 182,132
-------- --------
Total liabilities and equity ......................... $ 1,035,942 $ 616,415
=========== ===========
Net interest income and interest margin (1) .......... $ 32,488 14.8% $ 20,144 13.7%
Net interest rate spread (2) ......................... 9.3% 9.2%
Managed Basis
Credit card loans .................................... $ 5,245,017 $ 256,443 19.8% $ 3,622,087 $ 173,957 19.5%
Total interest-earning assets ........................ 5,310,500 257,029 19.6% 3,689,375 174,859 19.2%
Total interest-bearing liabilities ................... 4,710,548 68,627 5.9% 3,391,071 53,824 6.4%
Net interest income and interest margin (1) .......... $ 188,402 14.4% 121,035 13.3%
Net interest rate spread (2) ......................... 13.7% 12.8%
</TABLE>
(1) Net interest margin is computed by dividing annualized net interest income
by average total interest-earning assets.
(2) The net interest rate spread is
the annualized yield on average interest-earning assets minus the annualized
funding rate on average interest-bearing liabilities.
<PAGE>
Other Operating Income
Other operating income contributes substantially to the Company's
results of operations, representing 76% of owned revenues for the three month
period ended March 31, 1999. The following table presents other operating income
on an owned basis:
Three Months Ended
March 31,
(Dollars in thousands) 1999 1998
---- ----
Other Operating Income:
Net securitization and credit card servicing income $ 76,998 $ 34,907
Credit card fees, interchange and other income .... 21,309 13,021
Fee-based services revenues ....................... 37,536 24,568
------ ------
Total .......................................... $135,843 $ 72,496
======== ========
Other operating income increased $63.4 million for the three month
period ended March 31, 1999, over the comparable period in 1998. This increase
is primarily due to the $42.1 million increase in income generated from net
securitization and credit card servicing income as a result of the increases in
average managed loans and the repricing of fees in the managed credit card loan
portfolio. For the three month period ended March 31, 1999, credit card fees,
interchange and other income increased $8.3 million over the comparable period
in 1998. This increase was primarily due to the growth in total accounts and
loans in the managed credit card portfolio, and an increase in the credit card
fee structure which occurred in the fourth quarter of 1998, which has resulted
in a significant increase in credit card fee revenue over the prior year.
Additionally, fee-based services revenues increased by $13.0 million
for the three month period ended March 31, 1999. This increase is attributed to
the Company's debt waiver product and the increases in membership program
revenues.
Other Operating Expense
<TABLE>
Three Months Ended
March 31,
(Dollars in thousands) 1999 1998
---- ----
Other Operating Expense:
<S> <C> <C>
Credit card account and other product solicitation and marketing expenses $22,945 $10,150
Employee compensation ................................................... 23,318 15,088
Data processing services and communications ............................. 10,282 8,857
Third-party servicing expenses .......................................... 3,646 2,571
Warranty and debt waiver underwriting and claims servicing expenses 3,980 2,875
Credit card fraud losses ................................................ 1,263 1,316
Other ................................................................... 28,228 13,491
------- -------
Total ................................................................ $93,662 $54,348
======= =======
</TABLE>
Total other operating expenses for the three month period ended March
31, 1999 increased $39.3 million over the comparable period in 1998, largely due
to costs associated with the growth of the Company's business activities.
Employee compensation and other expenses increased $8.2 million and $14.7
million, respectively, for the three month period ended March 31, 1999, due to
increased staffing needs and use of outside services to support the increase in
credit card accounts and fee-based services active member growth and increased
goodwill amortization. Also, credit card account and other product solicitation
and marketing expenses increased $12.8 million, largely due to the increase in
fee-based marketing activity and testing and implementation of other new
marketing programs during the first quarter of 1999.
Income Taxes
The Company's provision for income taxes includes both federal and
state income taxes. Applicable income tax expense was $13.7 million for the
three month period ended March 31, 1999 compared to $7.0 million for the same
period in 1998. This tax expense represents an effective tax rate of 38.8% and
38.5% for the periods ended March 31, 1999 and 1998, respectively.
Asset Quality
The Company's delinquency and net loan charge-off rates at any point in
time reflect, among other factors, the credit risk of loans, the average age of
the Company's various credit card account portfolios, the success of the
Company's collection and recovery efforts, and general economic conditions. The
average age of the Company's credit card portfolio affects the stability of
delinquency and loss rates of the portfolio. The Company continues to focus its
resources on refining its credit underwriting standards for new accounts, and on
collections and post charge-off recovery efforts to minimize net losses. At
March 31, 1999, 48% of managed accounts and 43% of managed loans were less than
24 months old. Accordingly, the Company believes that its loan portfolio will
experience increasing or fluctuating levels of delinquency and loan losses as
the average age of the Company's accounts increases.
This trend is reflected in the change in the Company's net charge-off
ratio. For the quarter ended March 31, 1999, the Company's managed net
charge-off ratio was 9.4% compared to 8.8% for the quarter ended March 31, 1998.
Without the impact of purchase accounting related to acquired portfolios, the
charge-off rate would have been 10.8% and 10.5%, respectively. The Company
believes, consistent with its statistical models and other credit analysis, that
this rate will continue to fluctuate but generally rise over the next year.
The Company's strategy for managing loan losses consists of credit line
management and customer purchase authorizations. Loan losses are further managed
through the offering of credit lines which are generally lower than is currently
standard in the industry. Individual accounts and their related credit lines are
also continually managed using various marketing, credit and other management
processes in order to continue to maximize the profitability of accounts.
Delinquencies
Delinquencies not only have the potential to affect earnings in the
form of net loan losses, but are also costly in terms of the personnel and other
resources dedicated to their resolution. Delinquency levels are monitored on a
managed basis, since delinquency on either an owned or managed basis subjects
the Company to credit loss exposure. A credit card account is contractually
delinquent if the minimum payment is not received by the specified date on the
cardholder's statement. It is the Company's policy to continue to accrue
interest and fee income on all credit card accounts, except in limited
circumstances, until the account and all related loans, interest and other fees
are charged off. The following table presents the delinquency trends of the
Company's credit card loan portfolio on a managed portfolio basis:
<TABLE>
Managed Loan Delinquency
March 31, % of December 31, % of March 31, % of
1999 Total 1998 Total 1998 Total
---- ----- ---- ----- ---- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Managed loan portfolio ........ $5,112,867 100% $5,315,042 100% $3,617,276 100%
Loans contractually delinquent:
30 to 59 days ............ 122,360 2.4% 113,449 2.1% 79,902 2.2%
60 to 89 days ............ 98,727 1.9% 75,049 1.4% 59,245 1.7%
90 or more days .......... 187,195 3.7% 173,812 3.3% 127,606 3.5%
---------- ----- ---------- ----- ---------- -----
Total .................. $ 408,282 8.0% $ 362,310 6.8% $ 266,753 7.4%
========== ===== ========== ===== ========== =====
</TABLE>
The above numbers reflect the continued seasoning of the Company's
managed loan portfolio without the impact of purchase accounting related to
acquired portfolio's, delinquency rates would have been 8.3%, 7.4% and 7.5%,
respectively. The Company intends to continue to focus its resources on its
collection efforts to minimize the negative impact to net loan losses that
results from increased delinquency levels.
Net Charge-Offs
Net charge-offs include the principal amount of losses from cardholders
unwilling or unable to pay their loan balances, as well as bankrupt and deceased
cardholders, less current period recoveries. Net charge-offs exclude finance
charges and fees, which are charged against the related income at the time of
charge-off. The following table presents the Company's net charge-offs for the
periods indicated as reported in the consolidated financial statements and on a
managed portfolio basis:
Three Months Ended
March 31,
1999 1998
---- ----
(Dollars in thousands)
Owned basis:
Average loans and retained interests in
loans securitized outstanding ......... $ 823,757 $ 527,105
Net charge-offs ....................... 18,894 10,614
Net charge-offs as a percentage
of average loans outstanding (1) ... 9.3% 8.2%
========== ==========
Managed basis:
Average loans outstanding ............. $5,245,017 $3,622,087
Net charge-offs ....................... 121,453 79,017
Net charge-offs as a percentage of
average loans outstanding(1) ....... 9.4% 8.8%
========== ==========
(1) Annualized
Provision and Allowance for Loan Losses
The allowance for loan losses is maintained for the retained interests
in loans securitized. For securitized loans, anticipated losses and related
provisions for loan losses are reflected in the calculations of net
securitization and credit card servicing income. Provisions for loan losses are
made in amounts necessary to maintain the allowance at a level estimated to be
sufficient to absorb probable future losses of principal and earned interest,
net of recoveries, inherent in the existing loan portfolio.
The provision for loan losses on a managed basis for the three month
period ended March 31, 1999 totaled $178.8 million, compared to a provision of
$126.0 million for the three month period ended March 31, 1998. The increase for
the three month period ended March 31, 1999, as compared to the three month
period ended March 31, 1998, is primarily reflective of the overall maturation
of the portfolio and the increase in delinquent loans. The following table
presents the change in the Company's allowance for loan losses and other ratios
for the periods presented:
Analysis of Allowance for Loan Losses
Three Months Ended
March 31,
1999 1998
---- ----
(Dollars in thousands)
Managed Basis:
Balance at beginning of period ....... $393,283 $244,084
Provision for loan losses ............ 178,842 126,035
Loans charged-off .................... 128,163 81,664
Recoveries ........................... 6,710 2,647
-------- --------
Net loan charge-offs ................. 121,453 79,017
-------- --------
Balance at end of period ............. $450,672 $291,102
======== ========
Ending allowance as a percent of loans 8.8% 8.0%
======== ========
Derivatives Activities
The Company uses derivative financial instruments for the purpose of
managing its exposure to interest rate risks and has a number of procedures in
place to monitor and control both market and credit risk from these derivatives
activities. All derivatives strategies and transactions are managed by a special
management committee which must make quarterly reports to the Board of
Directors.
Prior to the spin off from Fingerhut Companies, Inc. ("FCI") on
September 25, 1998 ("Spin Off"), the Company had entered into interest rate cap
and swap agreements to hedge the cash flow and earnings impact of fluctuating
market interest rates on the spread between the floating rate loans owned by the
Metris Master Trust (the "Trust") and the floating and fixed rate securities
issued by the Trust to fund the loans. In connection with the issuance of term
asset-backed securities by the Trust in 1998, the Company entered into term
interest rate cap agreements with highly-rated bank counterparties in a total
notional amount of $1.8 billion effectively capping the potentially negative
impact to the Trust of increases in the floating interest rate of the securities
at approximately 9.2%. The Company also entered into a term interest rate cap
agreement in connection with the PNC Bank Corp portfolio acquisition with
highly-rated bank counterparties in a total notional amount of $640 million,
effectively capping the potentially negative impact of increases in market
interest rates of the securities at 7.4%. Due to the Spin Off, the Company
terminated interest rate swap agreements guaranteed by FCI related to two trust
series fixed rate asset-backed securities issuances. Proceeds were utilized to
purchase interest rate floor contracts from highly-rated counterparties which
did not require a FCI guaranty. The floors were in the same notional amounts,
fixed interest rate strike rates, and maturities as the previous swaps in order
to hedge the potential impact on the Company's cash flow and earnings of a low
market interest rate environment in which the yield on the Trust's floating rate
loans might decline causing the margin over the fixed rate funding to compress.
During October 1998, the Company terminated the interest rate floors related to
one of the Trust Series. The gain on this termination is being amortized into
income over the remaining life of the securities.
<PAGE>
Liquidity, Funding and Capital Resources
The Company finances the growth of its credit card loan portfolio
through cash flow from operations, asset securitization, bank financing,
long-term debt issuance, a jumbo CD program, and equity issuance.
At March 31, 1999 and 1998, the Company had received cumulative net
proceeds of approximately $4.3 billion and $3.1 billion, respectively from sales
of credit card loans to the Trust and Conduits. Cash generated from these
transactions was used to reduce borrowings and to fund credit card loan
portfolio growth. The Company relies upon the securitization of its credit card
loans to fund portfolio growth and, to date, has completed securitization
transactions on terms that it believes are satisfactory. The Company's ability
to securitize its assets depends on the favorable investor demand and legal,
regulatory and tax conditions for securitization transactions, as well as
continued favorable performance of the Company's securitized portfolio of
receivables. Any adverse change could force the Company to rely on other
potentially more expensive funding sources and, in the worst case scenario,
could create liquidity risks if other funding is unavailable.
On June 30, 1998, the Company executed a $200 million, three-year
revolving credit facility and a $100 million five-year term loan (the "New
Credit Facility") with a syndicate of banks and money market mutual funds. This
agreement became effective upon the Spin Off from FCI on September 25, 1998. The
New Credit Facility, which is not guaranteed by FCI, replaced the Company's $300
million, five-year revolving credit facility (the "Old Credit Facility"). The
New Credit Facility is secured by receivables and general intangibles of the
Company and Metris Direct, Inc. and all subsidiary stock other than non-United
States organized corporations and guaranteed by Metris Direct, Inc. Other
subsidiaries may in the future guarantee this credit agreement. Financial
covenants in the New Credit Facility include, but are not limited to,
requirements concerning minimum net worth, minimum tangible net worth to net
managed receivables and tangible net worth plus reserves to delinquent
receivables. At March 31, 1999, the Company was in compliance with all financial
covenants under this agreement. At March 31, 1999 and December 31, 1998, the
Company had outstanding borrowings of $107 million and $110 million,
respectively, under the New Credit Facility. As a result of the Spin Off and the
removal of the FCI guarantee, the Company is no longer able to borrow at an
investment grade rate. The interest rate under the New Credit Facility is higher
than the interest rate under the Old Credit Facility due to the Company's lower
independent credit rating.
Beginning in the first quarter of 1999, Direct Merchants Bank began
issuing jumbo certificates of deposit ("CDs"). These CDs are issued in
increments of $100,000 and are sold through third party investment banks. As of
March 31, 1999, $65.7 million of CDs were outstanding with maturities ranging
from six months to two years and fixed interest rates ranging from 4.9% to 5.5%.
In addition to asset securitizations and bank funding, the Company uses
long term debt and equity to fund continued credit card growth. While the
Company planned to issue common equity shares in a public offering after the
Spin Off during the fourth quarter of 1998, volatility in the stock market and
in the Company's stock price caused the Company to seek alternatives to public
issuance through either private issuance of equity or public or private issuance
of equity-like securities. On November 13, 1998, after a review of several
alternatives and discussions with several advisors and investors, the Company
entered into agreements with affiliates of the Thomas H. Lee Company, (the "Lee
Company") to purchase $200 million in Series B Perpetual Preferred Stock (the
"Series B Preferred") and $100 million in 12% Senior Notes due 2006 (the "Lee
Senior Notes"). The Company also issued the Lee Company 3.75 million ten-year
warrants to purchase shares of the Company's common stock for $30, subject to
adjustment in certain circumstances. The Series B Preferred has a 12.5% dividend
payable in additional shares of Series B Preferred for ten years, then
converting to payable in cash. The proceeds from the issuance of the Series B
Preferred and the Lee Senior Notes were used to fund the PNC portfolio
acquisition and general corporate purposes.
On March 12, 1999, shareholders' approved conversion of the Series B
Preferred and Lee Senior Notes into Series C Perpetual Convertible Preferred
stock (the "Series C Preferred"). If notice is received that there is no
regulatory objection to the conversion to the Series C Preferred, the Series B
Preferred and the Lee Senior Notes will be converted into 0.8 million shares of
Series C Preferred at a conversion price of $37.25 and the warrants will be
canceled. The Series C Preferred has a 9% dividend payable in additional shares
of Series C Preferred and will also receive any dividends paid on the Company's
common stock on an as converted basis. The cumulative payment-in-kind dividends
are effectively guaranteed for a seven-year period. Assuming conversion of the
Series C Preferred into common stock had occurred in the first quarter of 1999,
the Lee Company would have owned approximately 30% of the Company on a diluted
basis.
Converting to the Series C Preferred will cause a one-time, non-cash
accounting adjustment for retiring the Series B Preferred and Lee Senior Notes.
The excess of the fair value of the Series C Preferred over the carrying value
of the Series B Preferred and the Lee Senior Notes at the time of the conversion
must be allocated to the Lee Senior Notes and the Series B Preferred Stock based
upon their initial fair values. To arrive at net income available to common
stockholders in the calculation of earnings per share, the amount allocated to
the Lee Senior Notes would be recognized as an extraordinary loss from the early
extinguishment of debt and the amount allocated to the Series B Preferred would
be recognized as a reduction of net income available to common stockholders. The
extraordinary loss attributable to the Lee Senior Notes will not be recorded net
of taxes. These adjustments will have no impact on total stockholders' equity.
At the time of the filing of this 10-Q, no regulatory notice had been received.
As the portfolio of credit card loans grows, or as the Trust and
Conduit certificates amortize or are otherwise paid, the Company's funding needs
will increase accordingly. The Company believes that its cash flow from
operations, asset securitization programs, together with the New Credit
Facility, long term debt issuance, jumbo CD program and equity issuance, will
provide adequate liquidity to the Company for meeting anticipated cash needs,
although no assurance can be given to that effect.
Newly Issued Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments. It requires enterprises to
recognize all derivatives as either assets or liabilities in the statement of
financial position and to measure those instruments at fair value. This
statement is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. The Company is evaluating the financial impact the adoption of
this statement will have on in its financial statements.
Year 2000
The "Year 2000 Problem" is a result of software systems or hardware
systems utilizing two digits instead of four digits to define the year. Software
or hardware with only two digit capacity may interpret the year 00 as 1900 when
calculating age, length of a phone call, financing period for a loan, or
expiration for a credit card. The problem is not limited to computers and
computer software. Anything that contains a processor that utilizes date
information needs to be assessed to insure it will work correctly in the Year
2000 (i.e. heating/cooling systems, telephones, elevators, alarm systems, vaults
with time locks). Vendors must be evaluated to ensure their compliance;
otherwise materials essential to business operation may not be delivered on
time.
The Company, like all database marketing companies and financial
services institutions, depends heavily upon computer systems for all phases of
its operations. The Company processes data through its own systems and obtains
data and processing services from various vendors. The Company, therefore, must
concern itself not only with its own systems, but also with the status of Year
2000 compliance with respect to those vendors that provide data and processing
services to the Company.
Most of the Company's existing information systems are less than three
years old and were originally designed for Year 2000 compliance, but as a
cautionary measure, the Company has begun testing such internal systems for Year
2000 compliance. The Company has created a Year 2000 project team to identify,
address, and monitor internal computer systems; environmental systems such as
heating/cooling systems, telephones, and elevators; and vendor issues related to
Year 2000 issues. The Company believes that it has adequate resources to achieve
Year 2000 compliance for its systems, which currently may be compliant, and the
evaluation of vendors.
The following phases are used in managing the Year 2000 project for the
Company. These phases are consistent with the OCC and the Federal Financial
Institutions Examination Council (the "FFIEC") recommendations for project
organization.
The Awareness Phase was completed in October 1997. The goal was to
define the Year 2000 problem and gain executive level support.
The Assessment Phase was completed in March 1998. The goal was to
complete an inventory of possible Year 2000 exposure points to gain an
understanding of the size and complexity of the issue.
The Renovation Phase began March 1998 with a targeted completion of
July 1999 for mission critical applications. This phase of the project cannot be
considered successful and complete until the systems have experienced the
century and the leap year transitions and any problems have been addressed. The
goal of this phase is code enhancement, hardware and software upgrades, system
replacements, vendor certification and other associated changes.
The Validation and Implementation Phase began in April 1998 with a
targeted completion of mission critical applications by September 1999. Again,
this phase of the project cannot be considered successful and complete until the
systems have experienced the century and the leap year transitions and any
problems have been addressed. The goal of this phase is validation/testing of
items to ensure Year 2000 compliance, implementation of renovated systems, and
certification of Year 2000 compliance by business users.
<PAGE>
The following milestones are a part of the Company's plan to achieve
Year 2000 compliance.
September 30, 1998 ................. Completed development of a proactive
customer awareness program
September 30, 1998 ................. Completed organization planning guidelines
and business impact analysis for Year 2000
Business Resumption Contingency Planning
December 31, 1998 .................. Contingency planning and validation for
Year 2000 Business Resumption Contingency
Planning is underway
September 30, 1999 ................. Testing of mission-critical systems and
service providers should be complete and
implementation should be substantially
complete
October 31, 1999 ................... Contingency planning and validation for
Year 2000 Business Resumption Contingency
Planning should be complete
As of March 31, 1999, the project is on schedule. A customer
awareness program has been implemented; a Contingency Planning framework
has been completed and contingency planning efforts are well underway; testing
of mission critical systems was underway by December 1998; and testing of
Mission Critical systems is targeted for completion by September 1999.
The Company is dependent on databases maintained by FCI, and card and
statement generation, among other services, provided by First Data Resources
("FDR"). In addition, the Company is dependent on MasterCard(R) and Visa(R) for
clearinghouse activities associated with credit card use. The project team has
been working with its identified material vendors, including FCI, FDR,
MasterCard, and Visa to determine the status of each vendor's plans for becoming
Year 2000 compliant. The project team is striving to obtain test results showing
Year 2000 compliance by vendors. The project team has developed high level
contingency plans to address non-compliance by its material vendors, which may
include replacing vendors.
Although the Company cannot ensure compliance by all of its vendors on
a timely basis, the Company believes that it is taking appropriate steps to
identify exposure to Year 2000 problems and to address them on a timely basis.
The Company believes that the costs of Year 2000 compliance will not be
material to the Company's consolidated financial position, results of
operations, or cash flows.
The most reasonably likely worst case scenario that may impact the
Company's results of operations, financial condition and prospects is the
failure of FDR, VISA(R) and MasterCard(R) to provide services. The
Company's cardholders would be unable to use their credit cards or otherwise
access their accounts. Due to several unknown contributing factors, and the
scope of the Year 2000 issue, the impact this worst case scenario would have on
the Company's results of operations, financial condition and prospects, is an
uncertainty. The scenarios will be analyzed and addressed in the Company's
contingency plans.
The Company views contingency planning from a remediation and business
resumption perspective. Remediation Contingency Planning refers to mitigating
the risks associated with the failure to successfully complete renovation,
validation, and implementation of mission critical systems and vendor services.
Year 2000 Business Resumption Contingency Planning is the process of identifying
core business processes and critical information systems that support those
processes, and developing plans to enable those processes to be resumed, or
alternatives instituted, in the event of a disruption.
The Company has completed high level Year 2000 Remediation Contingency
plans for mission critical applications and vendors. The contingency plans
include identification of the product/service provided, the current vendor,
other vendors that could provide the product/service, estimated timeline and
cost to convert services to another vendor, and any business reasons why the
backup vendors could not provide the services. These plans are reviewed
periodically for accuracy.
The Company has completed a framework that is used in developing Year
2000 Business Resumption Contingency plans and has begun to document plans for
core business processes. Completion of these plans is targeted for October 1999.
Forward-Looking Statements
This quarterly report contains some forward-looking statements.
Forward-looking statements give our current expectations of future events. You
will recognize these statements because they do not strictly relate to
historical or current facts. Such statements may use words such as "anticipate,"
"estimate," "expect," "project," "intend," "think," "believe," and other words
or terms of similar meaning in connection with any discussion of future
performance of the Company. For example, these include statements relating to
future actions, future performance of current or anticipated products,
solicitation efforts, expenses, the outcome of contingencies such as litigation,
and the impact of the capital markets on liquidity. From time to time, we also
may provide oral or written forward-looking statements in other material
released to the public.
Any or all of our forward-looking statements in this report and in any
other public statements we make may turn out to be wrong. They can be affected
by inaccurate assumptions or by known or unknown risks and uncertainties. Many
factors, which can not be predicted with certainty, will be important in
determining future results. Among such factors are the Company's limited
operating history as a stand alone entity, its limited experience in originating
and servicing credit card accounts, the lack of seasoning of its credit card
accounts which renders predictability of delinquencies more difficult, interest
rate risks, dependence on the securitization markets, state and federal laws and
regulations, and general economic conditions that can have a major impact on the
performance of loans. In addition, like all companies, the Company must deal
with the uncertainty surrounding the effect of the Year 2000 problem. Each of
these factors and others are more fully discussed under the caption
"Business--Risk Factors" contained in the Company's Annual Report on Form 10-K
for the year ended December 31, 1998. As a result of these factors, no
forward-looking statements can be guaranteed. Actual future results may vary
materially. Also, please note that the factors we provide are those we think
could cause our actual results to differ materially from expected and historical
results. Other factors besides those listed here or in the Company's 10-K for
the year ended December 31, 1998, could also adversely affect the Company.
We undertake no obligations to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise.
You are advised, however, to consult any further disclosure we make on related
subjects in our periodic filings with the Securities and Exchange Commission.
This discussion is provided to you as permitted by the Private Securities
Litigation Reform Act of 1995.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in market prices
and rates. The Company's principal market risk is due to changes in interest
rates. This affects the Company directly in its lending and borrowing
activities, as well as indirectly as interest rates may impact the payment
performance of the Company's cardholders.
To manage the Company's direct risk to market interest rates,
management actively monitors the interest rates and the interest sensitive
components of the Company's owned and managed balance sheet to minimize the
impact changes in interest rates have on the fair value of assets, net income
and cash flow. Management seeks to minimize the impact of changes in interest
rates on the Company primarily by matching asset and liability repricings.
The Company's primary owned and managed assets are credit card loans,
which are virtually all priced at rates indexed to the variable Prime Rate.
Retained interests in loans securitized and loans held for securitization are
funded through a combination of cash flow from operations, the Company's $300
million bank credit facility, $200 million in senior notes, jumbo CDs, and
equity issuance. The $300 million bank credit facility has pricing that is
indexed to the variable London Interbank Offered Rate ("LIBOR") or a Prime Rate.
The Company's securitized loans are owned by the Trust and bank-sponsored
multiseller receivables conduits (the "Conduits"), which have committed current
funding indexed to variable commercial paper rates, as well as term funding
which is either directly indexed to LIBOR or at fixed rates. At March 31, 1999,
approximately 25.5% of the Trust and Conduit funding of securitized receivables
was funded with fixed rate certificates.
Combining the interest rate floor transaction referred to above with
the Trust and Conduit funding, in a low market interest rate environment, 83.0%
of the funding for the securitized loan portfolio is indexed to floating
commercial paper and LIBOR rates. In a high market interest rate environment,
the potentially negative impact on earnings of higher interest expense is
mitigated by the fixed rate funding and the interest rate cap contracts
described above.
The approach used by management to quantify interest rate risk is a
sensitivity analysis which management believes best reflects the risk inherent
in the Company's business. This approach calculates the impact on net income
from an instantaneous and sustained change in interest rates by 200 basis
points. Assuming no counteractive measures by management, a 200 basis point
increase in interest rates affecting the Company's floating rate financial
instruments, including both debt obligations and loans, will result in an
increase in net income of approximately $17.6 million relative to a base case
over the next 12 months; while a decrease of 200 basis points will result in a
reduction in net income of approximately $12.1 million. The Company's use of
this methodology to quantify the market risk of financial instruments should not
be construed as an endorsement of its accuracy or the accuracy of the related
assumptions. In addition, this methodology does not take into account the
indirect impact interest rates may have on the payment performance of the
Company's cardholders. The quantitative information about market risk is
necessarily limited because it does not take into account operating transactions
or other costs associated with managing immediate changes in interest rates.
Part II. Other Information
Item 1. Legal Proceedings
The Company is a party to various legal proceedings resulting from the
ordinary business activities relating to its operations. On February 25, 1999,
the Company announced that the claims against it in the shareholders lawsuits
filed in October 1998 in the United States District Court, District of Minnesota
have been dismissed with prejudice. The Complaints had alleged securities fraud
and other claims related to a decline in the Company's stock price. The lawsuits
were dismissed through a Stipulation and Order entered into by counsel for the
plaintiffs and defendants, and ordered by the Federal District Court. This
dismissal was agreed to and ordered prior to the case having been certified as a
class action and without payment to the named plaintiffs or their counsel.
Certain existing laws and regulations permit class action lawsuits on
behalf of customers in the event of violations, and such class lawsuits can be
very expensive to defend, even without any violation. One of these actions, an
Alabama action in the Circuit Court of Greene County (Preston Davis, Sr. et.
al. v. Direct Merchants Credit Card Bank, N.A., et. al. (Civil Action No.
CV98-012), seeks damages in an unascertained amount and purports to be a class
action, although no class has been certified. During the past several years,
the press has widely reported certain industry-related concerns which may
impact the Company. Some of these involve the amount of litigation instituted
against financial services and insurance companies operating in the state of
Alabama and the large punitive awards obtained from juries in that state. The
Alabama case, instituted in April 1998, generally alleges a fraudulent sale of
credit protection insurance without consent. Compensatory damages are sought.
The judicial climate in Alabama is such that the outcome of this case is
unpredictable. The Company's subsidiary believes it has substantive legal
defenses to this claim and is prepared to defend this case vigorously. Due to
the uncertainties in litigation and other factors, there is no assurance that
the Company's subsidiary will ultimately prevail. Should the Company's
subsidiary's case settle or otherwise be resolved, it believes the amount, in
the aggregate, will not be material to the Company's consolidated financial
condition. However, if this action, or any class action, is determined
adversely, such decision can have a significant adverse economic impact on the
Company.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
(a) and (c). The Company held a special meeting of stockholders
on March 12, 1999, and the matters voted on in that meeting were
the following:
The approval of the terms and issuance of Series C Perpetual
Convertible Preferred Stock in exchange for outstanding Series B
Perpetual Preferred Stock, 12% Senior Notes due 2006 and
warrants to purchase 3,750,000 shares of Common Stock at $30 per
share.
Broker
For Against Withheld Abstentions Non-Vote
14,650,423 216,062 None 19,012 None
The approval of an amendment to the Amended and Restated
Certificate of Incorporation to authorize 10,000,000 shares of
non-voting common stock and to increase the authorized number
of shares of preferred stock from 10,000,000 to 25,000,000.
Broker
For Against Withheld Abstentions Non-Vote
8,250,311 6,615,579 None 19,607 None
<PAGE>
The approval of an amendment to the Amended and Restated
Certificate of Incorporation to remove certain restrictions on
business activities.
Broker
For Against Withheld Abstentions Non-Vote
14,793,446 28,024 None 64,027 None
Approval of the first proposal required the affirmative vote of
a majority of the shares represented and voted at the special
meeting, in person or by proxy, with respect to the first
proposal. Approval of the second and third proposals required
the affirmative vote of a majority of the outstanding shares of
Common Stock. Accordingly, the first and third proposals were
approved and the second proposal was not approved.
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
11. Computation of Earnings Per Share
27. Financial Data Schedule
(b) Reports on Form 8-K:
Not applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
METRIS COMPANIES INC.
Signature Title Date
Principal financial officer: Executive Vice President, May 11, 1999
Chief Financial Officer
/s/ David D. Wesselink
David D. Wesselink
Principal accounting officer: Sr. Vice President, Finance, May 11, 1999
and Corporate Controller
/s/ Jean C. Benson
Jean C. Benson
Exhibit 11
METRIS COMPANIES INC. AND SUBSIDIARIES
Computation of Earnings Per Share
In thousands, except per share amounts Three Months Ended March 31,
1999 1998
BASIC:
Net income available to common stockholders ......... $17,115 $11,224
======= =======
Weighted average number of common shares outstanding 19,259 19,225
Net income per share ................................ $ .89 $ .58
DILUTED:
Net income available to common stockholders ......... $17,115 $11,224
======= =======
Weighted average number of common shares outstanding 19,259 19,225
Net effect of assumed exercise of stock options based
on treasury stock method using average market price 873 1,071
------- -------
20,132 20,296
------- -------
Net income per share ................................ $ .85 $ .55
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information from the consolidated
financial statements of Metris Companies Inc. for the quarter ended
March 31, 1999 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
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