Results of Operations
As a result of the changes in the mortgage industry, there was a significant increase in the demand for our services in 2008 and 2009 as mortgage investors wanted independent reviews of their new and existing loans; consequently, our revenues grew to record levels in 2009. This higher level of revenues continued in 2010 but is not expected to continue in 2011. We expect our revenues for 2011 to decline noticeably compared to 2010's levels as we anticipate a return back to normal levels after the unprecedented volumes of the past two years. However, we are encouraged by continued emphasis by lenders on performing quality control both pre-funding and post-funding. Revenues for the first quarter of 2011 totaled $7.0 million and reflected a significant decline compared to 2010's run rate, as expected. We experienced a significant decrease in quality control revenue; however, this was partially offset by significant increases in imaging fees and post-closing services. W e expect revenues in the second quarter of 2011 to reflect a small decline compared to the first quarter of 2011 but to decline significantly compared to the second quarter of 2010, as noted above.
Compensation and benefits expenses totaled $5.2 million for the first quarter of 2011 and included $4,161,000 of salaries, wages and payroll taxes, $838,000 of health insurance expense, $69,000 of stock compensation expense, from restricted stock awarded during the second quarter of 2010, $79,000 of executive bonuses and $93,000 of other benefits and expenses. We reduced our overall salaries and wages during the first quarter of 2011, including a significant decrease in overtime pay, due to the decline in revenue volume. We expect total compensation and benefits expenses to remain relatively constant for the second quarter of 2011 compared to the first quarter. However, we anticipate the total compensation and benefits expenses to be significantly lower in the second quarter of 2011 compared to the same period of 2010, due to $858,000 of executive bonuses awarded during the second quarter of 2010 resulting from the Company’s emergence from bankruptcy in 2010.
Depreciation and amortization expense totaled $461,000 for the three months ended March 31, 2011, including $348,000 of amortization of identifiable intangible assets recorded in accordance with fresh-start accounting as a result of the Company’s emergence from bankruptcy.
Other operating expenses totaled $703,000 for the three months ended March 31, 2011 and reflected a significant decline in the run rate compared to 2010. Included in other operating expenses were direct loan review costs ($89,000), telephone and utilities ($76,000), building maintenance and supplies ($66,000), expensed equipment ($56,000), shipping and postage ($65,000), general office supplies and expense ($63,000), insurance ($43,000), marketing and advertising ($35,000), legal and professional fees ($52,000), and travel and conference expenses ($35,000). We anticipate various revenue related expenses, such as direct loan review costs, shipping and postage, general office supplies and expense, etc., to be moderately lower in the second quarter of 2011 compared to the same period in 2010 consistent with the projected revenue trend; however, other expenses including depreciation, insurance, legal and professional fees, marketing and adverting, etc. are expected to remain relatively flat. Consequently, we expect a small decline overall in other operating expenses in the second quarter of 2011 compared to 2010. However, we expect the operating expense to remain relatively flat in the second quarter of 2011 compared to the first quarter of 2011, consistent with the revenue trend.
We incurred $315,000 of interest expense in the first quarter of 2011 on the 8% senior notes payable. As a result of the senior note repurchases completed in 2010, interest expense is expected to decrease to $1.3 million for the twelve months ended December 31, 2011 compared to annualized interest of $1.6 million for 2010.
Oklahoma quality jobs credits of $88,000 were recorded in the first quarter of 2011. As of April 1, 2011, the Company will no longer be eligible for these credits.
Income tax expense totaled $124,000 for the three months ended March 31, 2011 and included $107,000 of federal income tax expense and $17,000 of state income tax expense.
