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spk08: Ladies and gentlemen, thank you for standing by and welcome to the Navient second quarter 2021 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. You will need to press star 1 on your telephone keypad. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Mr. Nathan Rutledge. Sir, please go ahead.
spk05: Thanks, Lawrence. Good morning and welcome to Navient's second quarter 2021 earnings call. With me today are Jack Raimondi, our CEO, and Joe Fisher, our CFO. After their prepared remarks, we will open up the call for questions. Before we begin, keep in mind our discussion will contain predictions, expectations, forward-looking statements, and other information about our business that is based on management's current expectations as of the date of the presentation. Actual results in the future may be materially different from those disclosed here. This could be due to a variety of factors, including, among other things, uncertainties associated with the severity, magnitude, and duration of the COVID-19 pandemic and the related economic impact. As reported previously, the work from home policies and travel restrictions that have been put in place have not negatively affected our ability to close our books and maintain our financial reporting systems. internal controls over financial reporting or disclosure controls and procedures. Listeners should refer to the discussion of those factors on the company's Form 10-K and other filings with the SEC. During this conference call, we will refer to non-GAAP financial measures, including core earnings, adjusted tangible equity ratio, and other various non-GAAP financial measures derived from core earnings. Our GAAP results and description of our non-GAAP financial measures with a full reconciliation to GAAP can be found in the second quarter 2021 supplemental earnings disclosure. This is posted on the investors page at Navient.com.
spk03: Thank you, and now I'll turn the call over to Jack. Thanks, Nathan. Good morning, everyone, and thank you for joining us today and for your interest in Navient. Our business model continues to deliver exceptional results for our clients, our teammates, and our investors. Each business segment this quarter exceeded expectations as we executed our business plan and created value. This quarter's results were driven by stable margins in our lending segments, strong demand for our private education loan products, and continued strength in delivering services to our state clients in our business processing solutions segments. In total, we earned $165 million in core net income and delivered adjusted core earnings per share of 98 cents, an increase of 8% over the year-ago quarter. We continue to focus our efforts on increasing loan originations, growing business processing revenue, and improving financing and operating efficiency. This quarter, we originated $1.3 billion in private education loans, up from a pandemic impacted $238 million in the year-ago quarter. We are also optimistic about demand for new in-school lending as peak season for this product is underway. As a result, we are committed to our forecast of at least $5.5 billion in combined refi and in-school originations in 2021. Demand for our business processing solutions also remains strong throughout the quarter. Revenue remained above expectations as our performance and efficiency allowed us to maintain our pandemic-related project assignments longer. These projects have also allowed us to broaden the awareness of our technology-enhanced capabilities with clients, and we continue to expect the revenue from our COVID-related work to decline significantly over the balance of the year as these projects come to an end. Our FELP and private education loan borrowers continue to show very strong payment performance as the economy reopens. Forbearance rates are at or near pre-pandemic levels, and delinquency rates remain near historic lows. While we continue to offer payment relief for customers experiencing financial difficulty, the request for this assistance continues to fall. Our reserves for loan losses include the current economic outlook and the potential impact from the wind down of the various stimulus programs. Net interest margins in our student loan portfolios have also contributed to our financial results. We continue to reduce interest expense through the execution of new funding facilities at lower costs. These new funding transactions include lower spreads, higher advance rates, and innovative designs that allow us to reduce both the cost of our facilities and the level of unsecured debt, our highest cost funding source in our portfolios. Our actions in this area have delivered hundreds of millions of interest savings in the last three years. We've also delivered operating efficiency gains through increased automation and incorporation of artificial intelligence. This focus on building technology-enabled solutions has allowed us to improve our customer experience, reduce costs, and improve outcomes. Our efforts to improve customer experience and our financing and operating efficiency remains a primary focus for us. Our exceptional financial results have generated the capital to exceed our targeted capital ratios ahead of forecast, deliver an attractive dividend and increase our original plan for share repurchases. This is yet another example of how we create and deliver value for our investors. The pandemic created a very volatile and challenging environment. Our business plan, team and infrastructure allowed Naviant to respond to our customers and clients with the support and services needed to navigate the constantly changing and challenging environment while maintaining our focus on growth. As I look to the second half of the year, I remain very optimistic that we will continue to deliver exceptional results for each of our stakeholders. Before I turn the call over to Joe for a detailed review of the quarter, I would like to thank my colleagues for their continued commitment, agility, and effort to service our customers and clients. Thank you. Thank you for your attention. And then I'll turn the call over to Joe.
spk01: Thank you, Jack. And thank you to everyone on today's call for your interest in Navient. During my prepared remarks, I will review the second quarter results for 2021. I'll be referencing the earnings call presentation, which can be found on the company's website in the investor section. Our second quarter results compared to our original outlook for 2021 is provided on slide four. We are currently on pace to exceed all of our original targets provided at the beginning of the year. As a result of the strong first half and updated outlook, we are increasing the range of our adjusted core earnings per share guidance to a range of $4.20 to $4.30, an increase of over 34% compared to our original guidance. Our outlook excludes regulatory and restructuring costs, reflects a favorable interest rate environment, includes the announced debt repurchases and utilizing the remaining share repurchase authority of $300 million. Key highlights from the quarter, beginning on slide five, include GAAP EPS of $1.05 and adjusted core EPS of 98 cents. Charge-offs on both FELP and private education loans remain at historic lows. Originated $1.3 billion of private education loans, achieved BPS EBITDA margin of 30% in the quarter, strengthened our capital position, and returned $227 million to shareholders in the form of repurchases and dividends. Move to segment reporting beginning with federal education loans on slide six. Net interest margin declined 10 basis points from the prior year and remained flat at 97 basis points compared to the first quarter. The decline from the prior year was expected following the annual resets on certain loans that occurred on July 1, 2020, and reduced floor income by $30 million compared to the year-ago quarter. When adjusting for this event, net interest income was flat year-over-year at $141 million, despite a decline in the portfolio of 9%. This portfolio continues to benefit from the favorable interest rate environment and ongoing improvement in funding costs. Felt borrowers transition back to repayment, total delinquency rates have remained stable at 8.3%, while charge-offs remain at historically low levels. As more borrowers transition into repaying statuses, we expect these levels to revert toward pre-pandemic levels. Fee income and operating expenses in this segment decline primarily as a result of the expected decreases in asset recovery volume, impact of COVID-19 on certain operational activities, and improvements in operating efficiencies. Now let's turn to slide seven in our consumer lending segment. The net interest margin of 295 basis points is above our guided range and is 25 basis points lower than the year-ago quarter, largely driven by a shift toward our high-quality private refi product within our consumer lending portfolio, which now accounts for 40% of total loans in the segment. The negative $1 million provision in the quarter was comprised largely of three components. First, a $9 million decrease in the expected losses for the total portfolio. Second, a $5 million release in connection with a sale of $30 million of legacy private education loans. And third, a $13 million increase related to $1.3 billion of newly originated high quality education loans in the quarter. While we have seen an improvement in the current economic conditions, our allowance reflects the uncertainty related to the potential negative impact to the portfolio from the end of various payment relief and stimulus benefits that are currently forecasted to end this year. As borrowers continue to transition to repayment, we feel confident that we are adequately reserved given the well-seasoned and high credit quality of our portfolio. Let's continue to slide eight to review our business processing segments. The $66 million increase in revenue from the prior year is largely due to supporting states in their efforts to provide unemployment benefits, contact tracing, and vaccine administration, as well as an increase in revenue from our traditional business processing services. Leveraging our existing technology and infrastructure allowed us to exceed our original EBITDA targets and achieve EBITDA margins of 30%. As the economy reopens and these contracts begin to wind down, we expect to see a decline in associated revenue. The growth in revenue in this segment resulted in a $35 million increase in expenses in the quarter, which led to increased total operating expenses for the company. The overall efficiency ratio for the company of 51% in the quarter is outperforming our original target set at the beginning of the year, even as our growth businesses contribute a larger proportion to our overall revenue and expenses. Let's turn to our financing and capital allocation activity that is highlighted on slide nine. During the quarter, we utilized the cash raised from our unsecured debt issuance and loan sale transactions from earlier this year, along with operating cash flows to reduce our existing unsecured debt footprint by $692 million, resulting in a repurchase loss of $12 million. Subsequent to our second quarter results, on July 12th, We retired an additional $750 million of unsecured debt that was set to expire in January of 2022, which will result in an estimated repurchase loss of $20 million in the third quarter. We have no existing maturities for the remainder of 2021 and have reduced our total unsecured debt due in 2022 to under $1 billion. During the quarter, we were purchased 11.8 million shares at an average price of $17.02, all while improving our ATE ratio to 6.3%. The cumulative negative mark-to-market losses related to derivative accounting declined by 8% to $459 million in the quarter, mainly due to the natural passage of time. Excluding these temporary mark-to-market losses, which will reverse to zero as contracts mature, our adjusted tangible equity ratio is 8.0%. We expect to execute the remaining $300 million of authority over the remainder of the year. In the quarter, we sold $30 million of private education loans, resulting in a gain on sale of $2.5 million. This was a follow-on sale related to the larger legacy loan sale that occurred at the end of the first quarter. We do not forecast any additional loan sales in our guidance for the remainder of the year. During the quarter, we issued $2.1 billion of term-funded ABS. The demand for both FELP and private ABS continues to be strong. Our most recent issuance that priced on July 19th was 11 basis points tighter or 15% better than the previous private education refi transaction and was four times oversubscribed. These transactions, combined with improved financing efficiency in our facilities, demonstrate our ability to lower our cost of funds, while managing our debt maturity profile to better align to the cash flow projections of our total education loan portfolio. Turn to GAAP results on slide 10. We recorded second quarter GAAP net income of $185 million, or $1.05 per share, compared with net income of $125 million, or $0.64 per share, in the second quarter of 2020. In summary, this quarter's results demonstrate the continued dedication from Team Navient to meet the challenges and needs of our customers. The outperformance both in the quarter and year to date across the company positions us well for the remainder of 2021 to exceed all of our original targets, maintain our strong capital position, utilize the full remaining authority of $300 million for share repurchases, and achieve earnings per share of $4.20 to $4.30. Thank you for your time, and I will now open the call for questions.
spk08: At this time, I would like to remind everyone, in order to ask a question, please press star 1 on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Thank you. And your first question comes from the line of Mark from Barclays. You may ask your question.
spk02: Yeah, thank you. Joe, you mentioned reserves kind of contemplating the end of payment holidays. Could you just talk a little bit more about what your expectations are for delinquency trends and ultimate losses once those payment holidays end?
spk01: So I think of them as on the FELP portfolio coming back towards pre-pandemic levels. So when you think about the total delinquencies anywhere between 11 and 12 percent, and forbearance ranges called around 12 percent. The charge-offs, similar with our guidance given at the beginning of the year, we had guided towards 10 basis points. For the private portfolio, if you go back to pre-pandemic levels, you have to factor in that there is a mix of our refi book. So, for the Total delinquency levels, I would think, depending on the mix of refi loans, which are very high quality and low delinquency, I would expect that a more normalized environment to be in the mid to low 3% range. And then from a charge-off standpoint, I think, again, it's contingent on the mix, but you're getting into the low 1% range. Off of our guidance here and our outlook at the beginning of the year, we were at 1.5% to 2%. A lot of this is going to be a function of the overall refi mix for the private book. But ultimately, we would think as the stimulus ends at some point and these repayment relief options end, that you would get back to more normalized levels. But our overall quality will continue to improve just as we originate more refi loans.
spk02: Okay, that's helpful. And then, Jack, you alluded to your optimism about kind of the in-school originations as you enter this peak season. Are you already getting a read on that just based on applications? If so, how is that kind of tracking relative to what your expectations might have been?
spk03: Sure. So, yes, peak application flow really starts to pick up in the second half of July and and moves through August. And so we are seeing some early trends in that side of the equation. There's various measures that we look at just in terms of application flow, completed applications, approvals, and then of course we are still in need to wait. And the last piece that happens in this process that we're waiting for is school certifications. But where we stand right now, we're optimistic about what we're seeing. It is early still, but I think the product enhancements we made this year, some stronger partnerships that we have in place, and the different marketing initiatives that we've launched, I think all are coming together nicely. Okay.
spk02: What are your expectations for the returns on the in-school loans versus your refi product?
spk03: So we've been talking about mid to high ROE returns between the two, the refi at the lower end and the in-school at the higher end of that range. Okay.
spk02: On a loss-adjusted basis?
spk03: Yes.
spk02: Okay. Great. All right. Thank you.
spk08: Your next question comes from the line of Rick Shane from J.P. Morgan. Your line is open.
spk07: Good morning, guys. Thanks for taking the questions this morning. You guys have been clear during the year about the potential declines or offsets in revenues from government services in the business processing segment. I'm curious when we look at the operating expenses there, when you think about that structure, how much of the operating expense structure is fixed costs versus variable costs? So that way we can start to think about what the efficiency ratio for that part of the business would be.
spk03: Sure. So these contracts were really an example of our ability to kind of ramp up and respond to rapidly rising demand as the pandemic unfolded. really began to take hold. And in that area, we were doing work such as helping states process unemployment insurance claims, did some contact tracing-related work, and then most recently, helping states get the message out about vaccination, where to go, how to get it, how to sign up type of information. Of course, all of that will eventually recede as these programs wind down. We responded to your point, though, with incremental variable expense. So there was certainly some technology hardware related issues that we had to bring into play. But for the most part, we responded with temporary workers and temporary expense solutions. During this time frame, we hired well over 5,000 people to respond to these needs. We're down somewhere around 3,600 right now in those categories and expect those to continue to decline as the work winds down over the balance of this year.
spk07: Got it. Okay.
spk03: Thank you very much.
spk07: That's it for me.
spk08: Your next question comes from the line of John Heck from Jefferies. Your line is open.
spk10: Good morning, guys. Maybe kind of a high-level question. It seems like you guys are getting share. Have you talked about the competitive environment? SoFi is now a formerly public company. Wells is left. So there's some cross-currents there. How do you guys kind of define or characterize the competitive environment on the private lending side?
spk03: Obviously, in the private lending, we have two main product focus points. One is on the refi side of the equation with a different set of competitors in that space than we have in, say, the in-school origination. I think our capacity, our capability, and demonstrated results in the refi area kind of speak for themselves. We've been able to rapidly grow. our originations in that side of the equation and take share. Demand right now for our products has been strong. It is certainly muted by the fact that the Department of Education loans that are outstanding are at a 0% interest rate with no payments required. So we're seeing a higher concentration of the demand coming from people with borrowers with private education loans. But, you know, we expect as those loans come back into repayment, we'll see refi demand increase, and we fully expect that we are, you know, either the number one or number two originator for refi products in the country. In the in-school side of the equation, that market dynamic operates a little bit differently. It's very seasonal, and it is – and it builds on itself as you – as you start the program. So when we began originating loans, we are very much focused on borrowers, students and families who are borrowing for the first time. And so you then capture each subsequent academic year the opportunity to make subsequent loans to them. And so you build on your origination flow volume. It's a slower process because of the seasonality and because of that targeted approach. But certainly with the exit of a number of banks from the in-school origination business, we are more excited about the opportunity than we were when we launched the products, and we fully expect that we'll be able to take increasing market share as we expand each year going forward.
spk10: Okay, that's very helpful. And then any update on the case with DOE
spk03: Do you mean the CFPB? Oh, yeah. I'm sorry. The CFPB. I apologize. Yep. So that case just continues to grind its way through the slow, very, very slow court process. You know, all of the discovery at this stage in the game has been completed. Depositions have been taken. And we're kind of waiting on the judge to begin to schedule the next rounds of of rulings and hopefully get to a point where we get to have our day in court. As we've said over the last several months, through the different discovery process and the information that has been submitted to support the claims that the CAPB made, the customers, the witnesses that they believe support their claims have all acknowledged that Navient did in fact tell them about various income-driven repayment programs. I will also just point out our track record here is exceptional. We have the highest percentage of borrowers outside of the specialty programs like public student loan forgiveness enrolled in income-based repayment programs of any servicer in the country. we're eager to have our day in court and be able to present the evidence and hopefully move on from this case.
spk10: Great. Thanks, guys, very much for the update.
spk08: Your next question comes from the line of Lee Cooperman from Omega Family Office. Your line is open.
spk00: Thank you very much. I have really two or three questions that really relate about capital management. Number one, do you have a view of your normalized earnings? We're in a very unusual environment, but the normal year, what do you think you would earn? That's number one. Number two, what were the actual shares outstanding at the end of the second quarter? And the typical year, what do you think you have available to buy back? I know there's $300 million left this year, but you already bought a couple hundred million, right? So the typical year, do you think you could do $400 million or $500 million? And lastly and importantly, at what price on the common stock would repurchase be secondary to a dividend increase? You have not bumped your dividend for over six years because of the money directed towards stock repurchase. As the stock goes up, repurchase becomes less attractive. You want to share with us a view of what price on the stock would make a dividend more likely and dividend increase more likely than stock repurchase? Thank you.
spk01: Sure, so I'll answer your first question. In terms of the ending CSCs in the quarter, it was $170 million. And your question about share repurchases going forward, as you remember, at the beginning of the year, we had guided towards $400 million of planned share repurchases for 2021. With the loan sales and capital management and financing activities that we have done, we increased that to $600 million. We've got about $300 million left of that for the back half of this year. We haven't given guidance for 2022, but as you think about just our natural return and what's occurred over the last few years, we try to manage that with a natural amortization of our legacy portfolio. So as cash flows come off of that portfolio and that's a natural declining portfolio, you would anticipate that the amount available to repurchase shares would decline absent of any acceleration of capital into near periods. From that standpoint, I would anticipate that that would decline year over year, but those decisions will be taken up with the board and we'll obviously publicly announce that when we're through the reauthorization of this $300 million.
spk03: Yeah, and I think to add to Joe's comments, Lee, you know, we did take advantage of a very strong market for asset, demand for assets this year, selling loans. accelerating earnings and using those accelerated earnings to increase our share repurchases. You know, those types of decisions, you know, are made on a, you know, as the facts and circumstances allow. But, you know, since Navient was created, we have now repurchased 60 percent of the original shares that were outstanding at the creation of the company. So, obviously, a very strong repurchase program. and a commitment to returning that capital that Joe just described back to shareholders. Now, you know, to the extent we can grow our origination businesses faster, you know, that's obviously a great alternative for us. And we certainly look at when we have distributions that the split between dividend and share repurchases certainly comes into consideration here. I still would say, you know, based on the P ratios of this company, the price to book values, you know, we are still trading below our peers in the industry. And so, you know, we look at the value of the company and what we're able to do to drive earnings through origination growth through the BPS revenue segment that we're building. as strong factors that are yet to be fully perhaps recognized in the share price.
spk00: So are you saying that stock repurchase would be preferred to a dividend bump anywhere near current prices? Is that what you're saying? Yes. Okay. Do you happen to have handy for the 60% of the shares repurchased with the average price you paid over the life of the program?
spk01: Since 2014, our average share price has been $1,446.
spk00: Gotcha. Okay. Thank you. Good luck. Appreciate the answers. Thank you. Thanks, buddy. Thank you.
spk08: Again, if you would like to ask a question, please press star 1 on your telephone keypad. Again, that is star 1 on your telephone keypad. Your next question comes from the line of Moshe Orenbach from Credit Suisse. Your line is open.
spk09: Great. Thanks. Jack and Joe, any ability to kind of talk a little bit about the trajectory and net interest margin over the next several quarters, given you've had a little probably less of an increase in rates than you expected, but all of the variability and the business mix issues. Just kind of summarize that for us.
spk01: So I'll talk about FELP and the consumer lending separately. So from the FELP perspective, if you look out on the forward yield curve, I think you're seeing fairly stable rates, at least in the near term, and it will continue to benefit from this interest rate environment here over the next several quarters. So I don't anticipate much volatility on the FELP net interest margin. Typically, as you know, motion that the second half of the year is a little better than the first half of the year just because of the mechanics of the felt program but again shouldn't be shouldn't have very large movements here one way or the other on the consumer lending side it's really going to be a function of the mix of the portfolio so as we move towards the a greater mix of the the refi book you're going to see a continued decline in the in the net interest margin obviously we're exceeding our expectations here through year to date, even though we've originated $3 billion of refi loans. But from a capital perspective, we hold 5% of capital against that. As Jack mentioned, we talk about mid to high teens returns. So we view it as very attractive, but the net interest margin on the consumer lending segment should just continue to decline as the mix shifts from our legacy book to our refi portfolio.
spk09: Got you. Thanks. And I think, Joe, you had mentioned, you know, kind of tighter and better spreads from a funding standpoint. Any ability to kind of do anything, you know, incremental? You've got a fair amount of unencumbered private loans still. Like what's the, you know, are there any steps that you're going to be taking to enhance either net interest income or cash flow?
spk01: Certainly something that I evaluate every single day. We've been very busy through the first half of the year, and I said there's no planned sales in our guidance, but we continue to look at the financing options. We have $2.3 billion of unencumbered private loans, another $300 million of unencumbered FELP loans. as well as the over-collateralization of $6 billion on the rest of our books. So those are all things that we look at as ways to improve financing and also just make better use of our facilities and the capacity that we have there. So it is something definitely focused on, but in terms of our guidance, we have no planned loan sales. Great.
spk09: Okay. And just lastly for me, you mentioned a $5.5 billion origination target. Any way you can kind of tell us what proportion of that is expected to come from the in-school program, and do you think about the capital needs on those loans different than the 5%?
spk03: So we definitely have different capital allocations for in-school and refi. And the principal difference between the two products, of course, is the refi loans. when you make an in-school loan, your two risks are will the student graduate and does the degree produce income sufficient to cover the loan? In the refi space, you know those two answers. And so the credit risk profile and the ultimate delinquency and defaults of those portfolios are significantly smaller. We're gonna hold off and we'll talk more about the mix between in-school and refi in October when we cover peak season's results.
spk09: Thanks very much.
spk08: Your next question comes from the line of Sanjay Sakrani from KVW. Your line is open.
spk04: Thanks. I was wondering if you could give us an update on the servicing contract, because I know one of your peers sort of backed out of their contract or would not renew their contracts. Maybe you could just talk about that a little bit, Jack.
spk03: So, we continue to, you know, perform under the servicing contract that we have with the Department of Ed. We're currently servicing 5.5 million accounts under that program. Our contract, like all of the TVIS contracts, expires in December. And, you know, we'll be working with the Department of Ed to understand the new, you know, what their plans are and how we can help assist in that process. But it's probably too early to say anything one way or the other here.
spk04: Got it. And then just to follow up the question that Lee had about sort of steady state earnings, if we go back to sort of pre-COVID times, I think you guys had guided to a number in the $3 range roughly, and we're probably over a dollar higher today in terms of what the numbers are for this year. Obviously, there's the loan sales inside that number and such. But maybe, Joe, can you just speak to what you think the core number is on a go-forward basis, excluding some of the puts and takes there? Thanks. Thanks.
spk01: Yeah, so year-to-date, we've got about 85 cent benefit from the loan sales. And I'm not going to give 2022 guidance here. Moshe did ask about the NIM going forward, so I think we've got enough color there to work on. But certainly, we have been getting closer and closer to that inflection point, and you've been seeing growth in net interest income in the consumer lending in Phelps. Without giving 2022 guidance, we feel very confident about what we have said in the past and the outlook given this interest rate environment. As I said, I don't expect much volatility in our federal education loan segment and the FELP net interest margin there. We're going to look to achieve the efficiency ratios that we put forward as well. So that's something that we're going to continue to monitor. So I think that's something that you can plug into your models And the biggest driver there is just going to be what does the shape of the BPS revenue look like as these various programs wind down and the recovery takes hold. feel fairly confident that you're going to start to see the pickup in the business as usual or call it the legacy BPS segment versus these hopefully what we see as a one-time contract related to the pandemic, that that's not something that continues into next year. But we'll continue to work with states to expand on those contracts to continue to do that work, but it's a little too early to give 2022 guidance.
spk04: Got it. And maybe just one final one on in-school originations. I guess with one of the big competitors coming out of the market, do you guys feel like you can take your fair share of that market share, or do you think it's a little bit early to contemplate that?
spk03: Well, I think there's a variety of factors that are at play here in terms of students enrolled in programs. We have a narrower focus than most in-school originators on what types of schools we're focused on. Heavy component, heavy influence on encouraging borrowers, which are typically families, to make payments while they're in school so that their loans are not negatively amortizing. But yeah, we're pretty excited about the opportunity here. You know, with or without those competitors, we were excited about the opportunity that this marketplace presents for us. Thank you. You're welcome.
spk08: Your next question comes from the line of Aaron Zyganovich from Seeding. Your line is open.
spk06: Thank you. federal loan payment suspension could potentially be pushed out in another six months. How does that affect your business? Does it help run off flow a little bit during that period and does it change anything from an allowance or reserving standpoint?
spk03: Certainly the end date is currently set at September 30th and there are various recommendations for extending that. I think the most important thing for that process is making sure that once a date is picked that it is set so both borrowers and other participants have a clear set of expectations and timing. We've been through smaller components of things like this before, never something this large, but we think we have a very, very strong plan on how we would respond to customers and help them make that transition. How does it impact the business? It certainly has two components to it. There's certainly a benefit to consumer credit with consumers not having to make payments in one product. They have available resources to make payments in other areas. But the bigger impact for us is really demand on the refi side of the equation. As long as the interest rate is zero, that's not a rate that we obviously compete with on the refi side of the equation. And so we're definitely seeing borrowers who are looking to refinance their loans holding off at least on that portion of their outstanding debt balance. until the department and Congress decides when the extension will end.
spk06: Okay, that's helpful. On the EPS side of the revenues, when I'm looking at the breakdown on slide eight, it shows the increase in the health care. I'm assuming that's related to the COVID increases. But government services is also up. pretty nicely year-over-year. When we talk about these programs kind of falling off, do we think it gets back to that kind of Q220 type of level, or is there some of this business that's non-COVID pandemic related?
spk01: So the majority of the increase is related in both government services and healthcare to pandemic-related services here. Going back to Q220, I think that's a good starting point, but hopefully we can build upon obviously the good work that we've done here for the various states across the country, and that will lead to additional contracts, as well as just the natural reopening is going to help some of our business processing groups here too, just as hospitals begin to reopen and focus on sort of non-pandemic related items, I think that's going to benefit our healthcare services as well as just opening up the economy for tolling, parking, state collections, all of those things. So I think going back to Q220 is a good baseline, but we'd certainly look to build upon that with the work that we've done over the last year.
spk06: And I guess just to follow up on that, with the COVID pandemic, numbers worsening in recent weeks and discussion of booster shots that might be potentially necessary. Is that additional areas of work that you might be able to extend that out further for? Is that something you've been contemplating?
spk03: My first answer would be I hope it's not needed. But to the extent it is, it does create some potential there, yes. All right, thank you.
spk08: Thank you. There are no more follow-up questions. Nathan, back to you.
spk05: Thanks, Lawrence. We'd like to thank everyone for joining us on today's call. Please contact me if you have any other follow-up questions. This concludes today's call.
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