Bancorp WACC - Weighted Average Cost of Capital
The WACC of Bancorp Inc (TBBK) is 8.5%.
| Range | Selected | |
| Cost of equity | 7.6% - 9.8% | 8.7% |
| Tax rate | 25.4% - 25.6% | 25.5% |
| Cost of debt | 5.0% - 5.0% | 5% |
| WACC | 7.4% - 9.5% | 8.5% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 0.81 | 0.88 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 7.6% | 9.8% |
| Tax rate | 25.4% | 25.6% |
| Debt/Equity ratio | 0.04 | 0.04 |
| Cost of debt | 5.0% | 5.0% |
| After-tax WACC | 7.4% | 9.5% |
| Selected WACC | 8.5% | |
| Debt/Equity | Unlevered | |||
| Peers | Company Name | ratio | Beta | beta |
| TBBK | Bancorp Inc | 0.04 | 1.39 | 1.35 |
| BANC | Banc of California Inc | 0.57 | 0.17 | 0.12 |
| CHCO | City Holding Co | 0.17 | 0.58 | 0.52 |
| DCOM | Dime Community Bancshares Inc | 0.26 | 0.99 | 0.83 |
| GABC | German American Bancorp Inc | 0.09 | 0.79 | 0.74 |
| NBHC | National Bank Holdings Corp | 0.05 | 0.91 | 0.87 |
| OBNK | Origin Bancorp Inc | 0.29 | 0.54 | 0.45 |
| SBSI | Southside Bancshares Inc | 0.24 | 0.75 | 0.63 |
| SRCE | 1st Source Corp | 0.16 | 0.87 | 0.77 |
| SYBT | Stock Yards Bancorp Inc | 0.08 | 1.07 | 1.01 |
| Low | High | |
| Unlevered beta | 0.69 | 0.8 |
| Relevered beta | 0.72 | 0.82 |
| Adjusted relevered beta | 0.81 | 0.88 |
Bancorp's CAPM model and how its cost of Equity is calculated
The Cost of Equity reflects the return a company needs to deliver to shareholders to justify the risk of investing in its shares. It’s computed using the Capital Asset Pricing Model (CAPM), which blends the risk-free rate, the stock’s beta, and the market risk premium.
This method evaluates the stock’s risk compared to a safe investment and the market’s overall volatility.
Here’s how we figure out the cost of equity for Bancorp:
cost_of_equity (8.70%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.81) + risk_adjustments (0.25%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.