Image source: The Motley Fool.
Boston Private Financial Holdings Inc (BPFH)
Q2Â 2019 Earnings Call
Jul. 25, 2019, 8:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning, and welcome to the Boston Private Financial Holdings Second Quarter 2019 Earnings Conference Call. [Operator Instructions]
I would now like to turn the conference over to Adam Bromley, Director of Investor Relations. Please go ahead.
Adam Bromley -- Director of Investor Relations
Thank you, Carrie, and good morning. This is Adam Bromley, Director of Investor Relations of Boston Private Financial Holdings. We welcome you to this conference call to discuss our second quarter 2019 earnings. Our call this morning includes references to an earnings presentation, which can be found in the Investor Relations section of our website, bostonprivate.com. Joining me this morning are Anthony Dechellis, Chief Executive Officer; Paul Simons, President of Private Banking Wealth and Trust; and Steve Gaven, Chief Financial Officer.
This call contains forward-looking statements regarding strategic objectives and expectations for future results of operations and financial prospects. They are based upon the current belief and expectations of Boston Private's management and are subject to certain risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. I refer you also to the forward-looking statements qualifier contained in our earnings release, which identified a number of factors that could cause material differences between actual and anticipated results or other expectations expressed.
Additional factors that could cause Boston Private's results to differ materially from those described in the forward-looking statements can be found in the company's filings submitted to the SEC. All subsequent written and oral forward-looking statements attributable to Boston Private or any person acting on our behalf are expressly qualified by these cautionary statements. Boston Private does not undertake any obligation to update any forward-looking statements to reflect circumstances or events that occur after the forward-looking statements are made.
With that, I'll now turn it over to Anthony DeChellis.
Anthony DeChellis -- Chief Executive Officer
Thanks, Adam. Good morning, everyone, and thank you for joining the call. Before we review second quarter 2019 results, I'd like to share some brief thoughts on the first half of 2019. We spent the first half of the year building our management team and enhancing our platform as we began to implement our strategic vision for growth. We shared our thoughts on the firm's strategic direction and the future of Boston Private during our May 2019 Investor Day. If you've not listened to the webcast, I'd encourage you to listen to our presentation, which can be found on the Investor Relations page of Boston Private at www.bostonprivate.com.
A key component of our vision is to significantly increase the contribution of wealth management revenue as a percentage of our total revenue in order to improve the company's shareholder return profile. To accomplish this goal, we are aiming to grow the firm's AUM to $50 billion by the end of 2022, which we will achieve by deepening our relationships with existing banking and wealth management clients and by significantly increasing our relationship manager headcount through various strategic initiatives. A leading indicator of our progress will be our onboarding of talent.
While these efforts are under way, we will update you on our progress through press releases, and we will also provide an advisor count on future earnings calls. Another key component of growth will be expanding and refining our capabilities in the family enterprise and family office space. As we previously announced, Bill Woodson joined us in June to lead the growth of our business in the family office and ultra-high net worth segment. Boston Private's core competencies and broad capabilities make us well positioned to be a leader in this key segment.
Finally this quarter, we have formally started the process of consolidating KLS and Boston Private Wealth. We believe the strength of these 2 businesses when combined will achieve higher quality outcomes for our clients and allow us to compete at the highest levels. Before we move into the second quarter results, I'd like to note our company's current and ongoing expense discipline. This will provide critical self-funding for the investments we will be making as we reposition the company for growth.
With that, I will turn it over to Steve Gaven who will walk us through second quarter 2019 results. Steve?
Steven M. Gaven -- Executive Vice President and Chief Financial Officer
Thanks, Anthony, and good morning, everyone. My comments will begin on Slide three, where we show a summary of our consolidated financial highlights from the second quarter. This quarter, we reported GAAP net income of $19.4 million or $0.22 per share. Total deposits averaged $6.6 billion for the quarter, a 4% increase year-over-year. While total loans averaged $7 billion for the quarter, a 5% increase year-over-year.
Total AUM as of June 30, 2019, was $16.2 billion, flat linked quarter as positive market action offset negative net flows. Tier 1 common equity ratio was 11.2%, while tangible book value per common share increased 14% year-over-year to $8.71 per share. Slide four shows our income statement on a reported basis under GAAP. As you recall, we completed divestitures of 2 non-core affiliates, Anchor and BOS, in the second and fourth quarters of 2018. We will refer to Anchor and BOS as divested affiliates throughout the rest of this presentation.
Financial results from divested affiliates remain consolidated in the second quarter of 2018 results, which primarily explains the year-over-year decrease in revenue and expenses. Second quarter 2018 results include a $12.7 million income tax expense related to the divestiture of Anchor, which explains the significant increase in net income year-over-year. To enhance comparability and analyzing financial trends in the core business, the upcoming slides include certain non-GAAP operating metrics that exclude contributions from divested affiliates and notable items from previous quarters.
A summary of notable items can be found on Page 4, and a full reconciliation of GAAP to non-GAAP metrics can be found on Page 16. Slide five shows consolidated income statement, excluding notable items and divested affiliates. Pretax pre-provision income increased 11% year-over-year and 6% linked quarter driven by expense declines. Pretax income declined on a linked-quarter basis as the provision expense increased from a $1.4 million credit in the first quarter to a $1.4 million expense this quarter. Net income on an operating basis increased 5% year-over-year due to lower expenses, while the linked quarter decrease can be explained by the previously mentioned change in provision expense.
Slide six shows consolidated revenue trends. Total operating revenue during the second quarter was $81.8 million, down 1% year-over-year and 2% linked quarter. On a year-over-year basis, net interest income was flat, while total core fees and income excluding divested affiliates declined 3%, which is attributable to lower investment management fees and wealth management and trust fees. On a linked-quarter basis, total operating revenue declined 2%, primarily driven by lower net interest income. On Slide seven, we show a detailed breakout of our consolidated expenses on a GAAP basis.
Total expenses declined on a year-over-year basis, primarily due to divested affiliate results that are included in the second quarter 2018 results. Slide eight shows a detailed breakout of consolidated expenses, excluding notable items and divested affiliate results in the second quarter of 2018. Total operating expense decreased 6% year-over-year and linked quarter. The year-over-year decrease was driven by lower compensation and technology expense as a result of previously enacted efficiency initiatives. The linked quarter comparison reflects lower salaries and employee benefit expense due to seasonal payroll tax incurred during the previous quarter and realized savings in information systems expense due to the consolidation of information technology infrastructure. Slide nine shows the past 5 quarters of average loan balances and deposit balances by type.
Total average loans during the quarter increased 5% year-over-year to $7 billion, residential and C&I lending continue to drive overall loan growth. Total average deposits during the quarter increased 4% year-over-year to $6.6 billion. The year-over-year increase was driven by growth in client money market accounts, certificates of deposit and noninterest-bearing DDA accounts. The average loan-to-deposit ratio for the second quarter was 107%, an increase from 102% from the prior quarter, primarily driven by seasonality inherent in our client base. Also causing pressure on the loan-to-deposit ratio was the intentional runoff of brokered money markets and CDs.
On a year-over-year basis, average broker money market accounts and CDs declined $165 million, while linked quarter averages declined $54 million. We replaced broker deposits with wholesale borrowings during the quarter, which was comparatively less expensive. The runoff of brokered deposits contributed to moderating the increase in cost of deposits, which slowed from an increase of 7 basis points last quarter, in the first quarter of 2019, to 4 basis points this quarter. Slide 10 shows a 5-quarter trend of consolidated net interest income and net interest margin.
The core net interest income, which excludes interest recovered on previous nonaccrual loans, was flat year-over-year at $57.5 million as higher yields on interest-earning assets and higher asset volumes were offset by a higher cost of funding. On a linked-quarter basis, net interest income declined 1% as higher funding costs and higher borrowing volumes were partially offset by higher average interest-earning asset volumes. Interest-earning asset yields remained generally flat. On the bottom of the slide, we show a net interest margin table including changes in asset yields and funding costs.
Core net interest margin decreased 11 basis points linked quarter to 2.78%, changes in NIM were driven by increased funding costs and volumes, partially offset by higher interest-earning asset yields and volumes. Overall, the linked quarter increase to our deposit costs moderated this quarter as our total cost of deposits increased 4 basis points, and the cost of interest-bearing deposits increased 6 basis points. Slide 11 provides detail on our asset quality. This quarter, we booked a $1.4 million provision expense, which was primarily driven by loan growth and stable asset quality.
The chart below shows asset quality metrics during the quarter. Overall, criticized loans were flat in the quarter at $142 million. Within criticized loans, classified loans increased by $16 million due to certain CRE loans on the West Coast where we believe the risk of loss is low, while special mention loans decreased by $16 million. ALL as a percent of total loans declined to 106 basis points. On Slide 12, we show the private Banking segment, excluding the Wealth Management and Trust portion of our bank. The private bank operated at a 62% efficiency ratio during the second quarter, our expenses declined and pre-tax pre-provision income increased 6% year-over-year. Changes in pre-tax and operating net income metrics were primarily driven by changes to the provision for loan loss, which increased linked quarter and year-over-year.
I will now turn it back to Anthony to discuss our Wealth Management and Trust segment.
Anthony DeChellis -- Chief Executive Officer
Thanks, Steve. Slide 13 shows performance highlights for the Wealth Management and Trust segment, which operates under the Boston Private Wealth brand. Segment EBITDA margin for the quarter was 21% versus 19% in the first quarter of 2019 and 11% in the second quarter of 2018. Total revenues decreased 4% year-over-year while operating expenses declined 15% year-over-year. AUM was flat linked quarter as positive market action offset $127 million of negative net flows.
Slide 14 shows affiliate partner performance highlights. Overall, operating EBITDA margins of 36% exceeding our corporate targets of 30%. The year-over-year improvement in EBITDA and operating expense reflects the year -- the early stages of efficiency gains from combining KLS and Boston Private Wealth. That concludes our prepared comments for our second quarter 2019 reported results.
I'll now open the line for your questions.
Questions and Answers:
Operator
[Operator Instructions] The first question comes from Michael Young of SunTrust. Please go ahead.
Michael Young -- SunTrust -- Analyst
Hey good morning. It was good to see the pretty good expense control. Obviously, revenue was a little lighter. But as we kind of move forward through the investment phase, kind of the buildup in revenue and hiring, do you expect to be able to kind of match from an operating leverage perspective, the investments with the revenue? Or how should we kind of think about the pacing of that?
Anthony DeChellis -- Chief Executive Officer
Yes, Michael. We're going to be very measured on how we add expense. Obviously, as we ramp up recruiting and implement some of the technology initiatives that we've been working through, we're going to look to harvest gains elsewhere, harvest efficiencies in order to appropriately manage expenses. I think for the rest of the year, we're expecting expenses of $58 million to $59 million per quarter, obviously a little lower than what we talked about earlier in the year. And where you'll see the step-up really is comp and benefits line as we hire more people and bring those people on, and then in information systems, where we're going to start putting into service some of the tech initiatives that we worked on in the first half of the year.
Michael Young -- SunTrust -- Analyst
Okay. And could you talk just a little bit about some of the savings that you got on the technology side? It sounded like there was some consolidation of systems or just a little more color there would be helpful.
Anthony DeChellis -- Chief Executive Officer
Yes, it's really working through the legacy infrastructure and getting more efficient and more modern. So we had some inefficiencies in areas like telephone and telecom. We are working with a large number of providers. We've worked that down to get more efficient pricing and just more efficient infrastructure. So there's a lot of examples within that line item that showed up in the results of this quarter.
Adam Bromley -- Director of Investor Relations
That's a trend that I think you can expect to see as a theme moving forward, because I think we're just starting to identify, as you would expect, as we look at our technology, some of the efficiencies that are available to us that we just haven't taken advantage of in the past.
Michael Young -- SunTrust -- Analyst
Okay. That's good to hear. And then switching over to maybe the funding and deposit costs. Are there other opportunities to kind of reduce some deposit costs? I know you have typically some seasonal outflows this quarter that might revert, but any wholesale pricing changes that you plan to make as the Fed cuts rates? Or any other color on that side?
Anthony DeChellis -- Chief Executive Officer
Yes. So as we're expecting 2 rate cuts in our modeling right now. So we expect the July cut, September cut. And what we're expecting is, we really won't see that relief till probably the fourth quarter just given the timing of the cuts and then the lag. So most of our products were modeling lags of 1 to 4 months, betas of 0.5 to 0.8, which is not dissimilar to what we saw on the way up. And we expect to see some of that relief flow through in the fourth quarter.
Michael Young -- SunTrust -- Analyst
Okay. But no other structural opportunities to kind of reposition deposits, which are just expected to kind of move in line with rates from here?
Anthony DeChellis -- Chief Executive Officer
Yes. I don't expect a big wholesale borrowing restructuring or anything like that.
Michael Young -- SunTrust -- Analyst
Okay great. That's all for me. Thanks.
Operator
The next question comes from Chris McGratty of KBW. please go ahead.
Chris McGratty -- KBW -- Analyst
Morning.
Steven M. Gaven -- Executive Vice President and Chief Financial Officer
Morning Chris.
Chris McGratty -- KBW -- Analyst
Steve, I just want to go back to the margin per second. So exiting the quarter, you were $278 million, I believe. If I'm hearing you right, the right side of the balance sheet won't be a benefit until kind of the exit of the year. I'm interested in kind of deposit strategies, given where loan deposit ratio is and any kind of sensitivity, if the Fed does cut in July, does cut in September? I mean, how much of a downward bias are we thinking for margin for the next couple of quarters?
Anthony DeChellis -- Chief Executive Officer
So I'll attack both of those, Chris. Just on the NII front, based on what I just talked about on what we expect in terms of rate cuts and then shape of the curve, I think our year-end forecast is hanging around 2%. So I'd expect NII in the $57 million to $59 million range, which translates to a NIM of about 270 to 280. Third quarter should be weaker than the fourth quarter as we discussed, just the trends in deposit costs. And obviously, we're starting with the quarter with a high loan-to-deposit ratio. So there's still wholesale bonds that will roll off. From a loan-to-deposit ratio, I think you saw this happen last year as well. We are 105 in the second quarter, that worked down to 100% by year-end. That's our plan this year. And depending on how and when deposit seasonality comes back, we'll adjust lending accordingly. But the goal is to get that ratio back down to 100% by year-end.
Chris McGratty -- KBW -- Analyst
Okay. And the -- I think you said 50% to 80% beta. Is that deposit beta? Is that kind of the assumption on the way down?
Anthony DeChellis -- Chief Executive Officer
Yes.
Chris McGratty -- KBW -- Analyst
I guess the question would be, given where the loan-to-deposit ratio, do you think you can be that aggressive given that deposit growth has been somewhat of a challenge today?
Anthony DeChellis -- Chief Executive Officer
Yes. So those are the broad based reasons in the modeling. Obviously, when you get to -- there's a pool of obviously more price-sensitive clients, where there's not as much leverage, and we've accounted for that in our modeling.
Chris McGratty -- KBW -- Analyst
Okay. Maybe 2 other housekeeping. The provision in the quarter. I'm looking back, I think the last time you had a provision, anything meaningful was 3 or 4 years ago. It sounds like it's mostly related to -- mostly growth related. Could you speak to the pipeline of recoveries because I think that's been a big supporter of the provision in the last couple of years?
Anthony DeChellis -- Chief Executive Officer
Yes. I mean, there's not a big pipeline of recoveries. I think that's -- to your point, it's been about 6 years of provision credits. I think we've exhausted most of those. You see where the credit quality is and has been. You've seen where the charge off -- charge-offs have been. There's just not a lot more opportunity for big recoveries right now.
Chris McGratty -- KBW -- Analyst
Okay. And then the last one, the tax rate. It seems like it's been a little lower in the first half. How do we think about the back half tax rate?
Anthony DeChellis -- Chief Executive Officer
22% is what I would use, Chris.
Chris McGratty -- KBW -- Analyst
And that's an FTE. That is the DTE number?
Anthony DeChellis -- Chief Executive Officer
Yes.
Chris McGratty -- KBW -- Analyst
So we'll pick up thanks.
Operator
The next question comes from Alex Twerdahl with Sandler O'Neill.
Alex Twerdahl -- Sandler O'Neill -- Analyst
Hey good morning guys.
Anthony DeChellis -- Chief Executive Officer
Morning.
Alex Twerdahl -- Sandler O'Neill -- Analyst
First off, Anthony, just back to your sort of the comment that led off the call about the leading indicator for the AUM trends will be the onboarding of talent. Can you just share for us any early successes you've had with onboarding talent, kind of what the number is today versus where it was the Investor Day and kind of what the pipeline looks like right now for talent acquisition in the third quarter?
Anthony DeChellis -- Chief Executive Officer
Sure. I'll ask Paul Simons to comment on it in a second. I think we're generally on track to what we expected. Some of the early hires helped us sort of prepare for the integration of KLS and the refinement of our platform. So adding people like Bill Woodson, as an example, and certainly Maura Almy, who came on even earlier to help refine our technology platform, which is where some of the efficiencies are coming from allowing us to invest back in growth. But I think we're on track what we expected to see as far as the interest level on the firm and the talent we expect to onboard, but I have Paul Simons here this morning, who is the President of our Wealth business. So I'll have him add some additional comments.
Paul M. Simons -- Executive Vice President President Of Private Banking, Wealth & Trust
Yes, I would just add the talent recruitment initiative on the advisor side is well under way. There's a natural lag time as in both onboarding and ramp-up, 3 to 6 months in most cases. So we did see in the second half of June and carrying into July, for example, a pickup in top line growth from early Spring hires. So we expect to continue to see that sort of stack-and-build into the second half. And as Anthony said in his opening comments, going forward we'll provide more detailed updates on the advisor count.
Alex Twerdahl -- Sandler O'Neill -- Analyst
Okay. And so if you're at 54 at the Investor Day, what do you think you would be at on the end of 2019 in terms of advisors?
Anthony DeChellis -- Chief Executive Officer
Did you say that at the end of 2019?
Alex Twerdahl -- Sandler O'Neill -- Analyst
Yes.
Anthony DeChellis -- Chief Executive Officer
The way we look at it is not necessarily in the number of advisors. It's more the size of the business that they would run. So I would expect by the end of the year, because we're not necessarily looking for numbers. We're looking for people who are running big businesses. I would expect us to be well over 60, maybe 60 to 65 by the end of the year. I think we're at 56 to 58 now, and that includes some net. That's a net number because we have had some people who have exited the firm. So we will report it in terms of sort of the overall business that they potentially can bring to the firm as well as the number of advisors. So we're -- we're typically looking to bring in high quality people.
Alex Twerdahl -- Sandler O'Neill -- Analyst
Okay. That would be very helpful. And then, with the consolidation of KLS and Boston Private Wealth, will there be some additional cost saves when that finalizes? And when will that be?
Steven M. Gaven -- Executive Vice President and Chief Financial Officer
Yes. Why don't I start off, having Anthony jump in. I think less of that is a cost savings story more as a revenue growth story. There will be some cost savings, integration will happen in the third and fourth quarter, but this isn't a big play on -- we're going to put these together, look to suck out a lot of expenses. It's really about -- as we do harvest gains, you're going to see us, like I said earlier, reinvest in the franchise. And that's a franchise we certainly want to reinvest in.
Anthony DeChellis -- Chief Executive Officer
Yes. So as I said in my opening comments, combining the 2 businesses because they have similar skills, but they've got more powerful skills, depending on which -- on which element you're looking at. And so bringing them together is really to grow the overall business more rapidly. There'll be natural efficiencies just by -- there are some redundancies in there. But as Steve said, that's not the main reason for doing this. It's really a growth story, and we'll be adding people to KLS overall. There won't be a reduction in people there, but there will be some minor efficiencies. But as Steve said, it's really about growth.
Alex Twerdahl -- Sandler O'Neill -- Analyst
Okay. And then just kind of sort of technical accounting stuff. I can't recall the exact ownership structure of KLS. But is there anything from an accounting standpoint with potential minority interest or anything that we should be thinking about?
Anthony DeChellis -- Chief Executive Officer
No. We've owned them 100%, I think, since 2010 or somewhere thereabouts.
Alex Twerdahl -- Sandler O'Neill -- Analyst
Great. Thanks for taking my questions.
Operator
The next question will come from Christopher Marinac of Janney Montgomery Scott.
Christopher Marinac -- Janney Montgomery Scott -- Analyst
Hey good morning. Just wanted to follow up on the expense point you were making a minute ago. So the efficiency and overhead ratio progress that we see, should that continue? You seem to be making a lot of headway quickly toward the longer-range goals that you outlined in May.
Steven M. Gaven -- Executive Vice President and Chief Financial Officer
Yes, Chris, I mean, it's not going to happen overnight, right? We're doing a lot of things on the infrastructure side and the technology side. And you've seen some of that come through. And we've been focused on infrastructure. And then we're going to move more on to, what I would call, the operations side and implementing things like Encino and fully leveraging the sales force, and that will create efficiencies on top of that. And then that will allow us then to fund the growth initiatives that we're focused on. So I would just think about it as a consistent discipline. We're going to look to drive efficiencies wherever we can and then responsibly reinvest that. So we can turn that kind of expense into revenue-generating expense.
Anthony DeChellis -- Chief Executive Officer
And that last point Steve made is really what it's all about. Because it's increasing the productivity of our individual employees. The great thing about some of the things that Maura has been able to do coming on board is not only lowering the expense, but also, as Steve said, whether it's Precision Lender and Encino, will just make our people far more productive, while reducing the overall cost of our processes.
Christopher Marinac -- Janney Montgomery Scott -- Analyst
Got it, that's helpful. And then just a question on the AUM flows. Should we see some reversal? Or is it possible to see reversal in the second half of this year? Or just maybe your thoughts on kind of when the negative flows switch to positive?
Anthony DeChellis -- Chief Executive Officer
That's certainly our expectation. We're not surprised by -- we've obviously done this. We've all done this a long time. It's natural when you sort of come in, and you have to sort of reset the structure of things to see negative flows at first, but we certainly expect to see positive flows by the end of the year.
Christopher Marinac -- Janney Montgomery Scott -- Analyst
Thanks very much guys.
Operator
The next question will come from Lana Chan of BMO Capital.
Lana Chan -- BMO Capital -- Analyst
Good morning. I just was curious about your thoughts on given the more challenging rate environment. Does that impact your 2022 goals that you laid out at Investor Day?
Anthony DeChellis -- Chief Executive Officer
No, they don't.
Lana Chan -- BMO Capital -- Analyst
So even with a lower sort of NIM potential outlook going into the next few years you think you can still achieve that ROE target?
Anthony DeChellis -- Chief Executive Officer
Yes, Lana. I mean when we set those -- when we set those targets and when we did our modeling, we actually -- we accounted for what we thought was a pretty challenging rate environment. So we don't see that materially changing the outlook. Now if it gets significantly worse from here, we'll revisit that. But as of right now, we're not moving off those targets.
Lana Chan -- BMO Capital -- Analyst
Okay, great. I just wanted to get a little bit more color on the increase in NPAs that you mentioned, some of the commercial real estate loans, I think you said in California. Could we get more color on that?
Anthony DeChellis -- Chief Executive Officer
Sure. There's one -- it was two relationships, one of which, I think, is already paid off or will soon payoff. And one, it was just a vacancy issue in a building.
Lana Chan -- BMO Capital -- Analyst
On the commercial side?
Anthony DeChellis -- Chief Executive Officer
Yes.
Lana Chan -- BMO Capital -- Analyst
Thank you
Operator
This concludes our question-and-answer session. I would now like to turn the conference back over to Anthony Dechellis for any closing remarks.
Anthony DeChellis -- Chief Executive Officer
Thank you all for joining us today. We appreciate it and we look forward to next time. Thank you.
Operator
[Operator Closing Remarks]
Duration: 28 minutes
Call participants:
Adam Bromley -- Director of Investor Relations
Anthony DeChellis -- Chief Executive Officer
Steven M. Gaven -- Executive Vice President and Chief Financial Officer
Michael Young -- SunTrust -- Analyst
Chris McGratty -- KBW -- Analyst
Alex Twerdahl -- Sandler O'Neill -- Analyst
Paul M. Simons -- Executive Vice President President Of Private Banking, Wealth & Trust
Christopher Marinac -- Janney Montgomery Scott -- Analyst
Lana Chan -- BMO Capital -- Analyst
Transcript powered by AlphaStreet
This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.
