LANDMARK BANCORP INC (LARK) stock intrinsic value fair value estimate & owner earnings analysis

Landmark Bancorp is the holding company for Landmark National Bank, a community bank based in Manhattan, Kansas, with a network of branches across Kansas (plus one office in Kansas City, Missouri) offering residential and commercial real estate loans, commercial and agricultural lending, consumer loans, and a mortgage-banking operation that originates residential loans and sells most of them into the secondary market. It has paid an annual stock dividend for 25 consecutive years, a long record of returning capital to shareholders. The loan book is concentrated in commercial real estate (about 35% of loans) and commercial loans (about 16%), with a further roughly 9% in agricultural real estate and operating loans. That mix, common to a rural- and regional-Kansas lender, is the main source of risk: credit costs can rise sharply in a downturn even though today's numbers are healthy (the allowance for credit losses covered 125% of non-performing loans at the end of 2025, up from 98% a year earlier, after two commercial credits moved onto non-accrual status during the year). We build the value of the business from owner earnings - the cash the bank actually generates for shareholders after funding its own growth - rather than from reported net income. For a bank, the analogue to a manufacturer's working capital is the swing in cash tied up in its mortgage-banking pipeline (loans originated and then sold, which can add or subtract several million dollars of cash in a given year depending on volume and timing) together with the normal swings in accrued interest and other operating balances. We strip these timing effects out, along with stock-based compensation and the portion of equipment spending that represents growth rather than upkeep, to arrive at a measure of durable, repeatable cash earnings power. On that basis, owner earnings per share over the last ten years have ranged from a loss of about $0.42 in a weak cash-flow year (2017) to about $3.08 in the strongest year (2022), with a median across the decade - which spans both the near-zero-rate years and the subsequent rate-hiking cycle - of about $1.60 per share. We use that median, rather than the most recent year, as the starting point for value: 2025's owner earnings of roughly $2.66 per share were unusually strong, mostly reflecting a multi-year rebound in interest income as the bank's loan book repriced higher; that repricing tailwind is already visibly decelerating (interest income grew about 37% in 2023, 14% in 2024 and 8% in 2025), so we do not extrapolate the recent pace forward. Three cases: Bear case: A credit cycle takes hold within the concentrated commercial real estate and agricultural portions of the loan book - the kind of episode this company's own history has already produced smaller versions of (the 2017 and 2020 low-cash-flow years, and the two commercial credits that soured in 2025). Owner earnings per share fall toward roughly breakeven for a couple of years before gradually recovering to a lower, more credit-cost-burdened run rate of around $1.40-1.50 by year ten. This case is worth roughly $21 per share today. Base case: The interest-income tailwind from loan repricing continues to fade as it already has been doing, settling into mid-single-digit and then low-single-digit growth in owner earnings per share over the decade, with credit costs staying near their currently healthy levels. Owner earnings grow from about $1.60 toward roughly $2.25 per share by year ten, and we treat that level as persisting afterward - the bank has operated profitably and remained well capitalized in this footprint for decades, which supports the earnings power continuing, though we do not assume further growth beyond year ten without a specific reason to expect it. This case is worth roughly $35 per share today. Bull case: The loan-repricing tailwind persists closer to its recent multi-year average pace rather than fading completely, and credit costs remain benign, continuing the improving trend already visible in the allowance coverage numbers. Owner earnings grow to roughly $2.90 per share by year ten and hold there. This case is worth roughly $44 per share today. All three cases are discounted at a flat 6% - a rate we apply to every company we look at, so that the risk in a business shows up in the width of the range between the bear and bull cases rather than in the discount rate itself. What would have to be true for the bear case: continued deterioration in the credit quality of the commercial real estate and agricultural loan book, likely tied to a regional economic downturn, pushing provisioning meaningfully higher for several years - a real risk given the loan mix, even though nothing in the current filings points to it happening yet. We specifically tested the assumption that credit costs stay manageable against the filings: provision for credit losses jumped from about $0.3 million in 2023 to roughly $2.3 million in both 2024 and 2025, a real and already-visible increase, even though it has not yet shown up in deteriorating coverage ratios. We view this as evidence supporting the bear case's credit-cost assumption rather than the base case's benign one, and it is reflected in how quickly the bear case's cash flows fall in its first two years. The margin-of-safety price is around $23, a level that sits close to the bear-case value and roughly a third below our base-case estimate, so that it still holds up if credit conditions turn out worse than the base case assumes.