NATIONAL HEALTHCARE CORP 10-Q

Item 1. Financial Statements. NATIONAL HEALTHCARE CORPORATION Interim Condensed Consolidated Statements of Operations (in thousands, except share and per share amounts) (unaudited) Three Months Ended September 30 Nine Months Ended September 30 2025 2024 2025 2024 Revenues: Net patient revenues $ 370,989 $ 328,674 $ 1,095,945 $ 894,415 Other revenues 11,672 11,524 35,323 34,172 Government stimulus income - - - 9,445 Net operating revenues and grant income 382,661 340,198 1,131,268 938,032 Cost and expenses: Salaries, wages, and benefits 233,176 213,395 687,840 576,609 Other operating 96,604 82,509 281,004 238,092 Facility rent 11,345 10,886 34,038 31,804 Depreciation and amortization 11,158 10,619 33,151 30,543 Total costs and expenses 352,283 317,409 1,036,033 877,048 Income from operations 30,378 22,789 95,235 60,984 Other income (expense): Non–operating income 4,660 4,224 13,871 14,865 Interest expense ( 1,456 ) ( 1,742 ) ( 5,555 ) ( 1,788 ) Unrealized gains on marketable equity securities 20,827 32,767 26,748 56,290 Income before income taxes 54,409 58,038 130,299 130,351 Income tax provision ( 13,400 ) ( 15,338 ) ( 32,887 ) ( 34,294 ) Net income 41,009 42,700 97,412 96,057 Net (income)/loss attributable to noncontrolling interest ( 1,770 ) 89 ( 2,246 ) ( 211 ) Net income attributable to National HealthCare Corporation $ 39,239 $ 42,789 $ 95,166 $ 95,846 Earnings per share attributable to National HealthCare Corporation stockholders: Basic $ 2.53 $ 2.78 $ 6.15 $ 6.23 Diluted $ 2.50 $ 2.73 $ 6.10 $ 6.15 Weighted average common shares outstanding: Basic 15,484,464 15,411,680 15,461,804 15,384,758 Diluted 15,664,530 15,667,321 15,613,505 15,576,294 Dividends declared per common share $ 0.64 $ 0.61 $ 1.89 $ 1.81 The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements. 4 Table of Contents NATIONAL HEALTHCARE CORPORATION Interim Condensed Consolidated Statements of Comprehensive Income (unaudited – in thousands) Three Months Ended September 30 Nine Months Ended September 30 2025 2024 2025 2024 Net income $ 41,009 $ 42,700 $ 97,412 $ 96,057 Other comprehensive income: Unrealized gains on investments in marketable debt securities 868 3,516 3,543 3,074 Reclassification adjustment for realized losses on sales of marketable debt securities 11 - 663 1,388 Income tax expense related to items of other comprehensive income ( 124 ) ( 460 ) ( 619 ) ( 711 ) Other comprehensive income, net of tax 755 3,056 3,587 3,751 Net (income)/loss attributable to noncontrolling interest ( 1,770 ) 89 ( 2,246 ) ( 211 ) Comprehensive income attributable to National HealthCare Corporation $ 39,994 $ 45,845 $ 98,753 $ 99,597 The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements. 5 Table of Contents NATIONAL HEALTHCARE CORPORATION Interim Condensed Consolidated Balance Sheets (in thousands) September 30, 2025 December 31, 2024 unaudited Assets Current Assets: Cash and cash equivalents $ 130,629 $ 76,121 Restricted cash and cash equivalents, current portion 19,664 19,568 Marketable equity securities 166,754 140,064 Restricted marketable equity securities 17,482 23,190 Restricted marketable debt securities, current portion 12,821 11,529 Accounts receivable 132,448 135,325 Inventories 7,844 9,039 Prepaid expenses and other assets 5,877 9,572 Total current assets 493,519 424,408 Property and Equipment: Property and equipment, at cost 1,305,640 1,281,736 Accumulated depreciation and amortization ( 630,471 ) ( 597,447 ) Net property and equipment 675,169 684,289 Other Assets: Restricted cash and cash equivalents, less current portion 1,241 1,233 Restricted marketable debt securities, less current portion 110,091 108,275 Deposits and other assets 9,438 8,837 Operating lease right-of-use assets 55,821 79,167 Goodwill 170,478 170,478 Intangible assets 19,864 19,864 Investments in unconsolidated companies 36,521 27,878 Total other assets 403,454 415,732 Total assets $ 1,572,142 $ 1,524,429 The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements. 6 Table of Contents NATIONAL HEALTHCARE CORPORATION Interim Condensed Consolidated Balance Sheets (continued) (in thousands, except share and per share amounts) September 30, 2025 December 31, 2024 unaudited Liabilities and Stockholders ’ Equity Current Liabilities: Trade accounts payable $ 22,567 $ 25,493 Operating lease liabilities, current portion 33,198 31,841 Accrued payroll 109,991 92,719 Amounts due to third party payors 15,060 15,351 Accrued risk reserves, current portion 32,486 31,096 Other current liabilities 51,627 21,377 Dividends payable 9,930 9,420 Long-term debt, current portion 7,500 7,500 Total current liabilities 282,359 234,797 Long-term debt 65,625 129,500 Operating lease liabilities, less current portion 21,746 45,925 Accrued risk reserves, less current portion 81,546 72,520 Refundable entrance fees 6,127 6,063 Deferred income taxes 38,769 35,550 Other noncurrent liabilities 17,743 16,911 Total liabilities 513,915 541,266 Equity: Common stock, $ .01 par value; 45,000,000 shares authorized; 15,515,110 and 15,450,003 shares, respectively, issued and outstanding 154 154 Capital in excess of par value 235,878 232,530 Retained earnings 818,076 752,193 Accumulated other comprehensive loss ( 1,129 ) ( 4,716 ) Total National HealthCare Corporation stockholders’ equity 1,052,979 980,161 Noncontrolling interest 5,248 3,002 Total equity 1,058,227 983,163 Total liabilities and equity $ 1,572,142 $ 1,524,429 The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements. 7 Table of Contents NATIONAL HEALTHCARE CORPORATION Interim Condensed Consolidated Statements of Cash Flows (unaudited – in thousands) Nine Months Ended September 30 2025 2024 Cash Flows From Operating Activities: Net income $ 97,412 $ 96,057 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 33,151 30,543 Equity in earnings of unconsolidated investments ( 512 ) ( 589 ) Distributions from unconsolidated investments 616 512 Unrealized gains on marketable equity securities ( 26,748 ) ( 56,290 ) Realized gains on sale of marketable securities ( 872 ) ( 331 ) Gain on sale of unconsolidated company - ( 1,024 ) Gain on sale of property and equipment ( 3,606 ) - Deferred income taxes 2,600 15,559 Stock–based compensation 3,499 3,062 Changes in operating assets and liabilities: Accounts receivable 2,877 ( 19,898 ) Inventories 1,195 598 Prepaid expenses and other assets 2,582 8,809 Operating lease obligations 524 193 Trade accounts payable ( 2,926 ) 3,530 Accrued payroll 17,272 1,989 Amounts due to third party payors ( 291 ) 446 Accrued risk reserves 10,416 6,945 Other current liabilities 30,250 12,434 Other noncurrent liabilities 832 ( 8,031 ) Net cash provided by operating activities 168,271 94,514 Cash Flows From Investing Activities: Purchases of property and equipment ( 26,049 ) ( 19,444 ) Acquisition of White Oak Senior Living, net of cash acquired - ( 215,896 ) Acquisition of other businesses, net of cash acquired - 2,097 Proceeds from the sale of unconsolidated company - 2,100 Collections of (investments in) notes receivable 512 ( 75 ) Investments in unconsolidated companies ( 3,123 ) ( 8,370 ) Purchases of marketable securities ( 56,953 ) ( 24,736 ) Proceeds from sale of marketable securities 64,689 39,776 Net cash used in investing activities ( 20,924 ) ( 225,048 ) Cash Flows From Financing Activities: Borrowings under credit facility - 150,000 Repayments under credit facility ( 63,875 ) ( 3,000 ) Principal payments under finance lease obligations - ( 860 ) Dividends paid to common stockholders ( 28,773 ) ( 27,545 ) Noncontrolling interest contributions - 1,389 Issuance of common shares 9,415 13,471 Repurchase of common shares ( 9,566 ) ( 13,502 ) Entrance fee deposits (refunds) 64 ( 313 ) Net cash (used in)/provided by financing activities ( 92,735 ) 119,640 Net Increase/(Decrease) in Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents 54,612 ( 10,894 ) Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, Beginning of Period 96,922 125,968 Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, End of Period $ 151,534 $ 115,074 Balance Sheet Classifications: Cash and cash equivalents $ 130,629 $ 84,807 Restricted cash and cash equivalents 20,905 30,267 Total Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents $ 151,534 $ 115,074 The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements. 8 Table of Contents NATIONAL HEALTHCARE CORPORATION Interim Condensed Consolidated Statements of Stockholders ’ Equity (in thousands, except share and per share amounts) (unaudited) For the nine months ended September 30, 2025 : Common Stock Shares Amount Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Loss Non- controlling Interest Total Stockholders' Equity Balance at January 1, 2025 15,450,003 $ 154 $ 232,530 $ 752,193 $ ( 4,716 ) $ 3,002 $ 983,163 Net income – – – 32,205 – 85 32,290 Other comprehensive income – – – – 1,390 – 1,390 Stock–based compensation – – 1,027 – – – 1,027 Shares sold – options exercised 32,262 – 1,278 – – – 1,278 Repurchase of common shares ( 17,409 ) – ( 1,722 ) – – – ( 1,722 ) Dividends declared to common stockholders ($ 0.61 per share) – – – ( 9,444 ) – – ( 9,444 ) Balance at March 31, 2025 15,464,856 $ 154 $ 233,113 $ 774,954 $ ( 3,326 ) $ 3,087 $ 1,007,982 Net income – – – 23,722 – 391 24,113 Other comprehensive income – – – – 1,442 – 1,442 Stock–based compensation – – 1,233 – – – 1,233 Shares sold – options exercised 77,689 – 5,184 – – – 5,184 Repurchase of common shares ( 43,372 ) – ( 4,662 ) – – – ( 4,662 ) Dividends declared to common stockholders ($ 0.64 per share) – – – ( 9,909 ) – – ( 9,909 ) Balance at June 30, 2025 15,499,173 $ 154 $ 234,868 $ 788,767 $ ( 1,884 ) $ 3,478 $ 1,025,383 Net income – – – 39,239 – 1,770 41,009 Other comprehensive income – – – – 755 – 755 Stock–based compensation – – 1,239 – – – 1,239 Shares sold – options exercised 43,894 – 2,953 – – – 2,953 Repurchase of common shares ( 27,957 ) – ( 3,182 ) – – – ( 3,182 ) Dividends declared to common stockholders ($ 0.64 per share) – – – ( 9,930 ) – – ( 9,930 ) Balance at September 30, 2025 15,515,110 $ 154 $ 235,878 $ 818,076 $ ( 1,129 ) $ 5,248 $ 1,058,227 9 Table of Contents For the nine months ended September 30, 2024 : Common Stock Shares Amount Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Loss Non- controlling Interest Total Stockholders' Equity Balance at January 1, 2024 15,350,661 $ 153 $ 227,604 $ 687,599 $ ( 6,604 ) $ 1,728 $ 910,480 Net income – – – 26,213 – 38 26,251 Other comprehensive loss – – – – ( 437 ) – ( 437 ) Stock–based compensation – – 793 – – – 793 Shares sold – options exercised 150,194 1 8,412 – – – 8,413 Repurchase of common shares ( 101,131 ) – ( 9,900 ) – – – ( 9,900 ) Dividends declared to common stockholders ($ 0.59 per share) – – – ( 9,086 ) – – ( 9,086 ) Balance at March 31, 2024 15,399,724 $ 154 $ 226,909 $ 704,726 $ ( 7,041 ) $ 1,766 926,514 Net income – – – 26,844 – 262 27,106 Other comprehensive income – – – – 1,132 – 1,132 Stock–based compensation – – 1,176 – – – 1,176 Shares sold – options exercised 38,849 – 2,827 – – – 2,827 Repurchase of common shares ( 15,636 ) – ( 1,502 ) – – – ( 1,502 ) Dividends declared to common stockholders ($ 0.61 per share) – – – ( 9,408 ) – – ( 9,408 ) Balance at June 30, 2024 15,422,937 154 229,410 722,162 ( 5,909 ) 2,028 947,845 Net income/(loss) – – – 42,789 – ( 89 ) 42,700 Contributions attributable to noncontrolling interest 1,389 1,389 Other comprehensive income – – – – 3,056 – 3,056 Stock–based compensation – – 1,093 – – – 1,093 Shares sold – options exercised 34,417 2,232 – – – 2,232 Repurchase of common shares ( 16,384 ) – ( 2,100 ) – – – ( 2,100 ) Dividends declared to common stockholders ($ 0.61 per share) – – – ( 9,419 ) – – ( 9,419 ) Balance at September 30, 2024 15,440,970 $ 154 $ 230,635 $ 755,532 $ ( 2,853 ) $ 3,328 986,796 The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements. 10 Table of Contents NATIONAL HEALTHCARE CORPORATION Notes to Interim Condensed Consolidated Financial Statements September 30, 2025 (unaudited) Note 1 – Description of Business National HealthCare Corporation (“NHC” or the “Company”) is a leading provider of senior health care services. As of September 30, 2025, we operate or manage, through certain affiliates, 80 skilled nursing facilities with a total of 10,329 licensed beds, 26 assisted living facilities with 1,413 units, nine independent living facilities, three behavioral health hospitals, 34 homecare agencies, and 33 hospice agencies. We operate specialized care units within certain of our healthcare centers such as Alzheimer's disease care units and sub-acute nursing units. In addition, we provide insurance services, management and accounting services, and we lease properties to operators of skilled nursing and assisted living facilities. We operate in 9 states and are located primarily in the southeastern United States. Note 2 – Summary of Significant Accounting Policies The listing below is not intended to be a comprehensive list of all our significant accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. generally accepted accounting principles (“GAAP”), with limited need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. See our audited December 31, 2024 consolidated financial statements and notes thereto which contain accounting policies and other disclosures required by U.S. GAAP. Our audited December 31, 2024 consolidated financial statements are available at our web site: www.nhccare.com . Basis of Presentation The unaudited interim condensed consolidated financial statements to which these notes are attached include all normal, recurring adjustments which are necessary to fairly present the financial position, results of operations and cash flows of NHC. All significant intercompany transactions and balances have been eliminated in consolidation. The consolidated financial statements include the accounts of all entities controlled by NHC. The Company presents noncontrolling interest within the equity section of its consolidated balance sheets. The Company presents the amount of consolidated net income that is attributable to NHC and the noncontrolling interest in its consolidated statements of operations. We assume that users of these interim financial statements have read or have access to the audited December 31, 2024 consolidated financial statements and that the adequacy of additional disclosure needed for a fair presentation, except in regard to material contingencies, may be determined in that context. Accordingly, footnotes and other disclosures which would substantially duplicate the disclosure contained in our most recent annual report to stockholders have been omitted. This interim financial information is not necessarily indicative of the results that may be expected for a full year for a variety of reasons. Estimates and Assumptions The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and could cause our reported net income to vary significantly from period to period. Net Patient Revenues and Accounts Receivable Net patient revenues are derived from services rendered to patients for skilled and intermediate nursing, rehabilitation therapy, assisted living and independent living, home health care services, hospice services, and behavioral health services. Net patient revenue is reported at the amount that reflects the consideration to which the Company expects to be entitled in exchange for providing patient services. These amounts are due from patients, governmental programs, and other third -party payors, and include variable consideration for retroactive revenue adjustments due to settlement of audits, reviews, and investigations. 11 Table of Contents The Company recognizes revenue as its performance obligations are completed. Routine services are treated as a single performance obligation satisfied over time as services are rendered. These routine services represent a bundle of services that are not capable of being distinct. The performance obligations are satisfied over time as the patient simultaneously receives and consumes the benefits of the healthcare services provided. Additionally, there may be ancillary services which are not included in the daily rates for routine services, but instead are treated as separate performance obligations satisfied at a point in time when those services are rendered. We determine the transaction price based on contractually agreed-upon amounts or rates, adjusted for estimates of variable consideration, such as implicit price concessions. We utilize the expected value method to determine the amount of variable consideration that should be included to arrive at the transaction price, using contractual agreements and historical reimbursement experience within each payor type. We constrain the transaction price, such that net revenues are recorded only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in the future. If actual amounts of consideration ultimately received differ from our estimates, we adjust these estimates, which would affect net revenue in the period such variances become known. Other Revenues Other revenues include revenues from the provision of insurance services to other healthcare providers, management and accounting services to other healthcare providers, and rental income. Our insurance revenues consist of premiums that are generally paid in advance and then amortized into income over the policy period. We charge for management services based on a percentage of net revenues. We charge for accounting services based on a monthly fee or a fixed fee per bed of the healthcare center under contract. We record other revenues as the performance obligations are satisfied based on the terms of our contractual arrangements. We recognize rental income based on the terms of our operating leases. Under certain of our leases, we receive variable rent, which is based on the increase in revenues of a lessee over a base year. We recognize variable rent annually or monthly, as applicable, when, based on the actual revenue of the lessee is earned. Government Grants We account for government grants in accordance with International Accounting Standards ("IAS") 20, Accounting for Government Grants and Disclosure of Government Assistance, and as such, we recognize grant income on a systematic basis in line with the recognition of specific expenses and lost revenues for which the grants are intended to compensate. For the nine months ended September 30, 2024, all conditions related to the Employee Retention Credit ("ERC") were met and the credit was recognized as government stimulus income. The ERC was established by the CARES Act and intended to help businesses retain their workforce and avoid layoffs during the pandemic. The ERC provided a per employee credit to eligible businesses based on a percentage of qualified wages and health insurance benefits paid to employees. The qualified wages and health insurance benefits paid by the Company were related to the second, third and fourth quarters of 2020. Segment Reporting In accordance with the provisions of Accounting Standards Codification ("ASC") 280, Segment Reporting , the Company is required to report financial and descriptive information about its reportable operating segments. The Company has two reportable operating segments: ( 1 ) inpatient services, which includes the operation of skilled nursing facilities, assisted and independent living facilities, and behavioral health hospitals, and ( 2 ) homecare and hospice services. The Company also reports an “all other” category that includes revenues from rental income, management and accounting services fees, insurance services, and costs of the corporate office. See Note 6 for further disclosure of the Company’s operating segments. Other Operating Expenses Other operating expenses include the costs of care and services that we provide to the residents of our facilities and the costs of maintaining our facilities. Our primary patient care costs include drugs, medical supplies, purchased professional services, food, and professional liability insurance and licensing fees. The primary facility costs include utilities and property insurance. In 2025, we contributed land to a newly-formed limited liability company resulting in an equity interest in the new entity. The fair value of the land contributed to the new entity was $ 5,625,000 . The related cost basis of the contributed land was $ 2,019,000 , which resulted in a gain of $ 3,606,000 . The gain has been included in the interim condensed consolidated statements of operations as a reduction of "other operating expenses." General and Administrative Costs With the Company being a healthcare provider, the majority of our expenses are "cost of revenue" items. Costs that could be classified as "general and administrative" by the Company would include its corporate office costs, excluding stock-based compensation and incentive compensation, which were $ 6,250,000 and $ 19,909,000 for the three and nine months ended September 30, 2025, respectively. General and administrative costs were $ 6,288,000 and $ 19,678,000 for the three and nine months ended September 30, 2024, respectively. 12 Table of Contents Long-Term Leases The Company’s lease portfolio primarily consists of operating real estate leases for certain skilled nursing facilities, assisted and independent living facilities, homecare and hospice offices, regional offices, and pharmacy warehouses. The original terms of the leases typically range from two to fifteen years. Several of the real estate leases include renewal options which vary in length and may not include specific rent renewal amounts. We determine if an arrangement is a lease at inception of a contract. We determine the lease term by assuming exercise of renewal options that are reasonably certain. The Company records right-of-use assets and liabilities for non-cancelable real estate operating leases with original or remaining lease terms in excess of one year. Leases with a lease term of 12 months or less at inception are not recorded and are expensed on a straight-line basis over the lease term. We recognize lease components and non-lease components together and not as separate parts of a lease for real estate leases. Operating lease right-of-use assets and liabilities are recorded at the present value of the lease payments over the lease term. The present value of the lease payments are discounted using the incremental borrowing rate associated with each lease. The variable components of the lease payment that fluctuate with the operations of a health facility are not included in determining the right-of-use assets and lease liabilities. Rather, these variable components are expensed as incurred. Property and Equipment Property and equipment are recorded at cost or fair value, if acquired. Depreciation is provided by the straight-line method over the expected useful lives of the assets estimated as follows: buildings and improvements, 20 - 40 years and equipment and furniture, 3 - 15 years. Leasehold improvements are amortized over periods that do not exceed the non-cancelable respective lease terms using the straight-line method. Investments in Unconsolidated Companies We use the equity method to account for our investments in joint ventures in which we have the ability to exercise significant influence. Original investments in these entities are recorded at cost and subsequently adjusted by our share of equity in income or losses. As of September 30, 2025, the majority of our investments in unconsolidated companies relates to a multi-family development that is under construction in Franklin, Tennessee, in which we own a 55 % non-controlling interest. Business Combinations We account for transactions that represent business combinations using the acquisition method of accounting in accordance with ASC 805, Business Combinations. Acquisitions are accounted for as purchases and are included in our consolidated financial statements from their respective acquisition dates. Assets acquired and liabilities assumed, if any, are measured at fair value on the acquisition date using the appropriate valuation method. Goodwill generated from acquisitions is recognized for the excess of the purchase price over the fair value of tangible and identifiable intangible assets acquired and liabilities assumed. In determining the fair value of identifiable assets, we use various valuation techniques. These valuation methods require us to make estimates and assumptions surrounding projected revenues and costs, future growth, and discount rates. Goodwill and Other Intangible Assets Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations. Goodwill is not amortized but is subject to an annual impairment test. We perform our annual goodwill impairment assessment on the first day of the fourth quarter. Tests are performed more frequently if events occur, or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. The Company’s indefinite-lived intangible assets consist of trade names and certificates of need and licenses. The Company reviews indefinite-lived intangible assets for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the carrying amount of the intangible asset is below its carrying amount. Accrued Risk Reserves We are self–insured for risks related to workers’ compensation and general and professional liability insurance. We have two wholly–owned limited purpose insurance companies that insure these risks. The accrued risk reserves include a liability for reported claims and estimates for incurred but unreported claims. Our policy is to engage an external, independent actuary to assist in estimating our exposure for claims obligations (for both asserted and unasserted claims). We reassess our accrued risk reserves on a quarterly basis. Professional liability remains an area of particular concern to us. The long-term care industry has seen an increase in personal injury/wrongful death claims based on alleged negligence by skilled nursing facilities and their employees in providing care to residents. The Company has been, and continues to be, subject to claims and legal actions that arise in the ordinary course of business, including potential claims related to patient care and treatment. A significant increase in the number of these claims, or an increase in the amounts due as a result of these claims could have a material adverse effect on our consolidated financial position, results of operations and cash flows. It is also possible that future events could cause us to make significant adjustments or revisions to these reserve estimates and cause our reported net income to vary significantly from period to period. 13 Table of Contents We are principally self-insured for incidents occurring in all centers owned or leased by us. The coverage includes both primary policies and excess policies. In all years, settlements, if any, in excess of available insurance policy limits and our own reserves would be expensed by us. Continuing Care Contracts We have continuing care retirement centers (“CCRC”) within our operations. Residents at these retirement centers may enter into continuing care contracts with us. Non-refundable fees are included as a component of the transaction price and are amortized into revenue over the actuarily determined remaining life of the resident, which is the expected period of occupancy by the resident. We pay the refundable portion of our entry fees to residents when they relocate from our community and the apartment is re-occupied. Refundable entrance fees are not included as part of the transaction price and are classified as noncurrent liabilities in our consolidated balance sheets. We also annually estimate the present value of the cost of future services and the use of facilities to be provided to the current CCRC residents and compare that amount with the balance of non-refundable deferred revenue from entrance fees received. If the present value of the cost of future services exceeds the related anticipated revenues, a liability is recorded with a corresponding charge to income. As of September 30, 2025 and December 31, 2024, we have recorded a future service obligation liability in the amount of $ 1,474,000 . This obligation is reflected within other noncurrent liabilities in the interim condensed consolidated balance sheets. Other Noncurrent Liabilities Other noncurrent liabilities include reserves primarily related to various uncertain income tax positions, deferred revenue, and obligations to provide future services to our CCRC residents. Deferred revenue includes the deferred gain on the sale of assets to National Health Corporation (“National”) and the non-refundable portion of CCRC entrance fees being amortized over the remaining life expectancies of the residents. Noncontrolling Interest The noncontrolling interest in a subsidiary is presented within total equity in the Company's interim condensed consolidated balance sheets. The Company presents the noncontrolling interest and the amount of consolidated net income attributable to NHC in its interim condensed consolidated statements of operations. The Company’s earnings per share is calculated based on net income attributable to NHC’s stockholders. The carrying amount of the noncontrolling interest is adjusted based on an allocation of the subsidiary earnings, contributions, and distributions. Recently Adopted Accounting Guidance In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023 - 09 " Income Taxes (Topic 740 ): Improvements to Income Tax Disclosures," which requires companies to disclose disaggregated jurisdictional and categorical information for the tax rate reconciliation, income taxes paid and other income tax related amounts. ASU 2023 - 09 is effective for annual periods beginning with the Company's fiscal year 2025. The Company has adopted the ASU and will include the required disclosures in our annual report. Recent Accounting Guidance Not Yet Adopted In October 2023, the FASB issued ASU 2023 - 06, "Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative," which amends U.S. GAAP to include certain disclosure requirements that are currently required under SEC Regulation S- X or Regulation S-K. Each amendment will be effective on the date on which the SEC removes the related disclosure requirement from SEC Regulation S- X or Regulation S-K. The adoption is not expected to have a material impact on the Company's financial statements as these requirements were previously incorporated under the SEC Regulations. In November 2024, the FASB issued ASU 2024 - 03 "Disaggregation of Income Statement Expenses," which requires the Company to disaggregate key expense categories such as employee compensation and depreciation within its financial statements. ASU 2024 - 03 is effective for annual periods beginning with the Company's fiscal year 2027, and interim periods with the Company's fiscal year 2028, with early adoption permitted. We are currently evaluating the impact this ASU will have on the company's financial statements and related disclosures. Reclassifications Certain accounts in the prior-year financial statements have been reclassified for the comparative purposes to confirm to the presentation in the current-year financial statements. 14 Table of Contents Note 3 – Net Patient Revenues The Company disaggregates revenue from contracts with customers by service type and by payor. Revenue by Service Type The Company’s net patient services can generally be classified into the following two categories: ( 1 ) inpatient services, which includes the operation of skilled nursing facilities, assisted and independent living facilities, and behavioral health hospitals, and ( 2 ) homecare and hospice services (in thousands) . Three Months Ended September 30 Nine Months Ended September 30 2025 2024 2025 2024 Net patient revenues: Inpatient services $ 331,349 $ 293,026 $ 981,838 $ 790,664 Homecare and hospice 39,640 35,648 114,107 103,751 Total net patient revenues $ 370,989 $ 328,674 $ 1,095,945 $ 894,415 For inpatient and hospice services, revenue is recognized on a daily basis as each day represents a separate contract and performance obligation. For homecare, revenue is recognized when services are provided based on the number of days of service rendered in the period of care or on a per-visit basis. Typically, patients and third -party payors are billed monthly after services are performed or the patient is discharged, and payments are due based on contract terms. As our performance obligations relate to contracts with a duration of one year or less, the Company is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. The Company has minimal unsatisfied performance obligations at the end of the reporting period as our patients are typically under no obligation to remain admitted in our facilities or under our care. As the period between the time of service and time of payment is typically one year or less, the Company did not adjust for the effects of a significant financing component. Revenue by Payor Certain groups of patients receive funds to pay the cost of their care from a common source. The following table sets forth sources of net patient revenues for the periods indicated: Three Months Ended September 30 Nine Months Ended September 30 Source 2025 2024 2025 2024 Medicare 31 % 30 % 31 % 32 % Managed Care 12 % 9 % 12 % 10 % Medicaid 29 % 33 % 30 % 30 % Private Pay and Other 28 % 28 % 27 % 28 % Total 100 % 100 % 100 % 100 % Medicare covers skilled nursing services for beneficiaries who require nursing care and/or rehabilitation services following a hospitalization of at least three consecutive days. For each eligible day a Medicare beneficiary is in a skilled nursing facility, Medicare pays the facility a daily payment, subject to adjustment for certain factors such as a wage index in the geographic area. The payment covers all services provided by the skilled nursing facility for the beneficiary that day, including room and board, nursing, therapy and drugs, as well as an estimate of capital–related costs to deliver those services. For homecare services, Medicare pays based on the acuity level of the patient and based on periods of care. A period of care is defined as a length of care up to 30 days with multiple continuous periods allowed. The services covered by the payment include all disciplines of care, in addition to medical supplies, within the scope of the home health benefit. For hospice services, Medicare pays a daily rate to cover the hospice’s costs for providing services included in the patient care plan. Medicare makes daily payments based on 1 of 4 levels of hospice care. All hospice care and services offered to patients and their families must follow an individualized written plan of care that meets the patient’s needs. 15 Table of Contents Our hospice service revenue is subject to certain limitations on payments from Medicare. We are subject to an inpatient cap limit and an overall Medicare payment cap for each provider number. We monitor these caps on a provider-by-provider basis and estimate amounts due back to Medicare if we estimate a cap has been exceeded. If applicable, we record these cap adjustments as a reduction to revenue. Medicaid is operated by individual states with the financial participation of the federal government. The states in which we operate currently use prospective cost–based reimbursement systems. Under cost–based reimbursement systems, the skilled nursing facility is reimbursed for the reasonable direct and indirect allowable costs it incurred in a base year in providing routine resident care services as defined by the program. Private pay, managed care, and other payment sources include commercial insurance, individual patient funds, managed care plans and the Veterans Administration. Private paying patients, private insurance carriers and the Veterans Administration generally pay based on the healthcare center's charges or specifically negotiated contracts. For private pay patients in skilled nursing, assisted living and independent living facilities, the Company bills for room and board charges, with the remittance being due on receipt of the statement and generally by the 10th day of the month the services are performed. Certain managed care payors for homecare services pay on a per-visit basis. This revenue is recorded on an accrual basis based upon the date of services at amounts equal to its established or estimated per-visit rates. State Relief Supplemental Funding The Company received supplemental Medicaid payments from various states. The funding generally incorporates specific use requirements primarily for direct patient care including labor related expenses or various patient care related expenses. We have recorded $ 1,838,000 and $ 5,267,000 in net patient revenues for these supplemental Medicaid payments for the three months ended September 30, 2025 and 2024, respectively. We have recorded $ 5,522,000 and $ 11,314,000 in net patient revenues for these supplemental Medicaid payments for the nine months ended September 30, 2025 and 2024, respectively. Third Party Payors Laws and regulations governing Medicare and Medicaid programs are complex and subject to interpretation. Noncompliance with such laws and regulations can be subject to regulatory actions including fines, penalties, and exclusion from the Medicare and Medicaid programs. We believe that we are following all applicable laws and regulations. Medicare and Medicaid program revenues, as well as certain Managed Care program revenues, are subject to audit and retroactive adjustment by government representatives or their agents. Settlements with third -party payors for retroactive adjustments due to audits, reviews or investigations are considered variable consideration and are included in the determination of the estimated transaction price for providing patient care. These settlements are estimated based on the terms of the payment agreement with the payor, correspondence from the payor and the Company’s historical settlement activity, including an assessment to ensure that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the retroactive adjustment is subsequently resolved. Estimated settlements are adjusted in future periods as adjustments become known, or as years are settled or are no longer subject to such audits, reviews, and investigations. We believe that any differences between the net revenues recorded, and final determination will not materially affect the consolidated financial statements. We have made provisions of approximately $ 15,060,000 and $ 15,351,000 as of September 30, 2025 and December 31, 2024, respectively, for various Medicare, Medicaid, and Managed Care claims reviews and current and prior year cost reports. Note 4 – Other Revenues Other revenues are outlined in the table below. Revenues from rental income include health care real estate properties owned by us and leased to third party operators. Revenues from management and accounting services include fees provided to manage and provide accounting services to other healthcare operators. Revenues from insurance services include premiums for workers’ compensation and professional liability insurance policies that our wholly owned insurance subsidiaries have written for certain healthcare operators to which we provide management or accounting services. "Other" revenues include miscellaneous health care related earnings (in thousands) . Three Months Ended September 30 Nine Months Ended September 30 2025 2024 2025 2024 Rental income $ 6,177 $ 6,028 $ 18,800 $ 18,015 Management and accounting services fees 4,115 4,226 12,623 12,744 Insurance services 966 818 2,611 2,506 Other 414 452 1,289 907 Total other revenues $ 11,672 $ 11,524 $ 35,323 $ 34,172 16 Table of Contents Rental Income The Company leases real estate assets consisting of skilled nursing facilities and assisted living facilities to third party operators. Additionally, we sublease four Florida skilled nursing facilities included in our lease from National Health Investors (“NHI”) as noted in Note 7 – Long Term Leases. NHI is a publicly-traded real estate investment trust. Mr. Robert G. Adams, non-executive Chairman of the NHC Board, also serves on the Board of Directors of NHI. Management Fees from National Health Corporation We manage five skilled nursing facilities owned by National Health Corporation (“National”). We recognized management fees and interest on management fees from these facilities of $ 1,377,000 and $ 1,348,000 for the three months ended September 30, 2025 and 2024, respectively. We recognized management fees and interest on management fees of $ 4,161,000 and $ 4,014,000 from these facilities for the nine months ended September 30, 2025 and 2024, respectively. Insurance Services For workers’ compensation insurance services, the premium revenues reflected in the interim condensed consolidated statements of operations for the three months ended September 30, 2025 and 2024 were $ 677,000 and $ 529,000 , respectively. The premium revenues reflected in the interim condensed consolidated statements of operations for the nine months ended September 30, 2025 and 2024 were $ 1,743,000 and $ 1,638,000 , respectively. Associated losses and expenses including those for self-insurance are included in the interim condensed consolidated statements of operations as "Salaries, wages and benefits." For professional liability insurance services, the premium revenues reflected in the interim condensed consolidated statements of operations for the three months ended September 30, 2025 and 2024 were $ 289,000 . The premium revenues reflected in the interim condensed consolidated statements of operations for the nine months ended September 30, 2025 and 2024 were $ 868,000 . Associated losses and expenses including those for self–insurance are included in the interim condensed consolidated statements of operations as "Other operating costs and expenses". Note 5 – Non – Operating Income Non–operating income is comprised of the following (in thousands) : Three Months Ended September 30 Nine Months Ended September 30 2025 2024 2025 2024 Dividends and net realized gains and losses on sales of securities $ 2,089 $ 1,683 $ 5,971 $ 5,462 Interest income 2,676 2,603 7,388 7,790 Equity in earnings/(loss) of unconsolidated investments (105 ) ( 62 ) 512 589 Gain on sale of unconsolidated company - - - 1,024 Total non-operating income $ 4,660 $ 4,224 $ 13,871 $ 14,865 Gain on sale of unconsolidated company In January 2024, the Company sold its 50 % joint venture ownership interest in a homecare agency located in Nashville, Tennessee. The total consideration paid to the Company was $ 2,100,000 , which resulted in a gain of $ 1,024,000 . Note 6 – Business Segments The Company has two reportable operating segments: ( 1 ) inpatient services, which includes the operation of skilled nursing facilities, assisted and independent living facilities, and behavioral health hospitals; and ( 2 ) homecare and hospice services. These reportable operating segments are consistent with information used by the Company’s Chief Executive Officer, as chief operating decision maker (“CODM”), to assess performance and allocate resources. The Company also reports an “all other” category that includes revenues from rental income, management and accounting services fees, insurance services, and costs of the corporate office. 17 Table of Contents The Company’s CODM evaluates performance including pretax earnings and allocates capital resources to each segment based on an operating model that is designed to improve the quality of patient care and profitability of the Company while enhancing long-term shareholder value. The CODM does not review assets by segment in his resource allocation and therefore, assets by segment are not disclosed below. The following table sets forth the Company’s unaudited interim condensed consolidated statements of operations by business segment (in thousands ): Three Months Ended September 30, 2025 Inpatient Services Homecare and Hospice All Other Total Revenues: Net patient revenues $ 331,349 $ 39,640 $ - $ 370,989 Other revenues 393 - 11,279 11,672 Net operating revenues 331,742 39,640 11,279 382,661 Costs and expenses: Salaries, wages, and benefits 195,745 23,788 13,643 233,176 Other operating 86,745 6,664 3,195 96,604 Rent 8,823 601 1,921 11,345 Depreciation and amortization 10,219 141 798 11,158 Total costs and expenses 301,532 31,194 19,557 352,283 Income/(loss) from operations 30,210 8,446 ( 8,278 ) 30,378 Non-operating income - - 4,660 4,660 Interest expense ( 1,456 ) - - ( 1,456 ) Unrealized gains on marketable equity securities - - 20,827 20,827 Income before income taxes $ 28,754 $ 8,446 $ 17,209 $ 54,409 Three Months Ended September 30, 2024 Inpatient Services Homecare and Hospice All Other Total Revenues: Net patient revenues $ 293,026 $ 35,648 $ - $ 328,674 Other revenues 370 - 11,154 11,524 Net operating revenues and grant income 293,396 35,648 11,154 340,198 Costs and expenses: Salaries, wages, and benefits 175,241 21,456 16,698 213,395 Other operating 72,384 6,612 3,513 82,509 Rent 8,422 602 1,862 10,886 Depreciation and amortization 9,632 172 815 10,619 Total costs and expenses 265,679 28,842 22,888 317,409 Income/(loss) from operations 27,717 6,806 ( 11,734 ) 22,789 Non-operating income - - 4,224 4,224 Interest expense ( 1,742 ) - - ( 1,742 ) Unrealized gains on marketable equity securities - - 32,767 32,767 Income before income taxes $ 25,975 $ 6,806 $ 25,257 $ 58,038 18 Table of Contents Nine Months Ended September 30, 2025 Inpatient Services Homecare and Hospice All Other Total Revenues: Net patient revenues $ 981,838 $ 114,107 $ - $ 1,095,945 Other revenues 1,197 - 34,126 35,323 Net operating revenues 983,035 114,107 34,126 1,131,268 Costs and expenses: Salaries, wages, and benefits 578,824 69,375 39,641 687,840 Other operating 252,064 20,969 7,971 281,004 Rent 26,486 1,790 5,762 34,038 Depreciation and amortization 30,380 402 2,369 33,151 Total costs and expenses 887,754 92,536 55,743 1,036,033 Income/(loss) from operations 95,281 21,571 ( 21,617 ) 95,235 Non-operating income - - 13,871 13,871 Interest expense ( 5,555 ) - - ( 5,555 ) Unrealized gains on marketable equity securities - - 26,748 26,748 Income before income taxes $ 89,726 $ 21,571 $ 19,002 $ 130,299 Nine Months Ended September 30, 2024 Inpatient Services Homecare and Hospice All Other Total Revenues: Net patient revenues $ 790,664 $ 103,751 $ - $ 894,415 Other revenues 710 - 33,462 34,172 Government stimulus income - - 9,445 9,445 Net operating revenues and grant income 791,374 103,751 42,907 938,032 Costs and expenses: Salaries, wages, and benefits 474,190 63,761 38,658 576,609 Other operating 207,883 18,977 11,232 238,092 Rent 24,795 1,736 5,273 31,804 Depreciation and amortization 27,646 545 2,352 30,543 Total costs and expenses 734,514 85,019 57,515 877,048 Income/(loss) from operations 56,860 18,732 ( 14,608 ) 60,984 Non-operating income - - 14,865 14,865 Interest expense ( 1,788 ) - - ( 1,788 ) Unrealized gains on marketable equity securities - - 56,290 56,290 Income before income taxes $ 55,072 $ 18,732 $ 56,547 $ 130,351 Note 7 – Long-Term Leases Operating Leases At September 30, 2025, we lease from NHI the real property of 32 skilled nursing facilities and three independent living centers under one lease agreement. As part of the lease agreement, we sublease four Florida skilled nursing facilities to a third -party operator. We have two remaining contractual options to renew the lease for 5 -year periods commencing January 1, 2027 and January 1, 2032, with a base rent for each renewal term equal to the fair rental value of the leased property as negotiated between the parties, without including any value attributable to improvements to the leased property voluntarily made by us at our expense. See Note 16 - Contingencies and Commitments and Note 17 - Subsequent Events for further discussion of the lease and our notice of exercise of the next renewal option. The percentage rent is based on a quarterly calculation of revenue increases and is payable on a quarterly basis. Total facility rent expense to NHI was $ 9,911,000 and $ 10,085,000 for the three months ended September 30, 2025 and 2024, respectively. Total facility rent expense to NHI was $ 29,725,000 and $ 29,371,000 for the nine months ended September 30, 2025 and 2024, respectively. 19 Table of Contents Minimum Lease Payments The following table summarizes the maturity of our operating lease liabilities as of September 30, 2025 ( in thousands ): Operating Leases 2026 $ 35,675 2027 10,948 2028 2,149 2029 1,753 2030 1,506 Thereafter 10,712 Total minimum lease payments 62,743 Less: amounts representing interest ( 7,799 ) Present value of future minimum lease payments 54,944 Less: current portion ( 33,198 ) Noncurrent lease liabilities $ 21,746 20 Table of Contents Note 8 – Earnings per Share Basic net income per share is computed based on the weighted average number of common shares outstanding for each period presented. Diluted net income per share reflects the potential dilution that would have occurred if securities to issue common stock were exercised, converted, or resulted in the issuance of common stock that would have then shared in our earnings. The following table summarizes the earnings and the weighted average number of common shares used in the calculation of basic and diluted earnings per share (in thousands, except for share and per share amounts): Three Months Ended September 30 Nine Months Ended September 30 2025 2024 2025 2024 Basic: Weighted average common shares outstanding 15,484,464 15,411,680 15,461,804 15,384,758 Net income attributable to National HealthCare Corporation $ 39,239 $ 42,789 $ 95,166 $ 95,846 Earnings per common share, basic $ 2.53 $ 2.78 $ 6.15 $ 6.23 Diluted: Weighted average common shares outstanding 15,484,464 15,411,680 15,461,804 15,384,758 Effects of dilutive instruments 180,066 255,641 151,701 191,536 Weighted average common shares outstanding 15,664,530 15,667,321 15,613,505 15,576,294 Net income attributable to National HealthCare Corporation $ 39,239 $ 42,789 $ 95,166 $ 95,846 Earnings per common share, diluted $ 2.50 $ 2.73 $ 6.10 $ 6.15 For the three and nine months ended September 30, 2025, 6,450 stock options were excluded from the calculation of diluted weighted average shares of common stock outstanding because the inclusion of these securities would have an anti-dilutive impact. For the three and nine months ended September 30 2024, we did not exclude any stock options from the calculation of diluted weighted average shares of common stock outstanding because the inclusion of these securities would have an anti-dilutive effect. Note 9 – Investments in Marketable Securities Our investments in marketable equity securities are carried at fair value with the changes in unrealized gains and losses recognized in our results of operations at each measurement date. Our investments in marketable debt securities are classified as available for sale securities and carried at fair value with the unrealized gains and losses recognized through accumulated other comprehensive income at each measurement date. Any credit-related decline in fair market values below the amortized cost of our available for sale debt securities are recorded in our results of operations through an allowance for credit losses. Realized gains and losses from securities sales are recognized in results of operations upon disposition of the securities using the specific identification method on a trade date basis. Refer to Note 10 for a description of the Company's methodology for determining the fair value of marketable securities. Marketable securities consist of the following (in thousands) : September 30, 2025 December 31, 2024 Amortized Cost Fair Value Amortized Cost Fair Value Investments available for sale: Marketable equity securities $ 30,176 $ 166,754 $ 30,176 $ 140,064 Restricted investments available for sale: Marketable equity securities 12,767 17,482 18,534 23,190 Corporate debt securities 62,677 63,095 58,927 57,471 Asset-based securities 13,759 12,942 15,593 14,410 U.S. Treasury securities 44,470 43,771 46,811 44,186 State and municipal securities 3,115 3,104 3,787 3,737 $ 166,964 $ 307,148 $ 173,828 283,058 21 Table of Contents Included in the marketable equity securities are the following (in thousands, except share amounts): September 30, 2025 December 31, 2024 Shares Cost Fair Value Shares Cost Fair Value NHI Common Stock 1,630,642 $ 24,734 $ 129,636 1,630,642 $ 24,734 $ 113,003 The amortized cost and estimated fair value of debt securities classified as available for sale, by contractual maturity, are as follows (in thousands) : September 30, 2025 December 31, 2024 Cost Fair Value Cost Fair Value Maturities: Within 1 year $ 17,348 $ 17,010 $ 25,707 $ 25,317 1 to 5 years 51,371 51,167 66,117 63,379 6 to 10 years 38,826 39,123 32,648 30,606 Over 10 years 16,476 15,612 646 502 $ 124,021 $ 122,912 $ 125,118 $ 119,804 Gross unrealized gains related to marketable equity securities are $ 141,687,000 and $ 115,259,000 as of September 30, 2025 and December 31, 2024, respectively. Gross unrealized losses related to marketable equity securities are $ 394,000 and $ 715,000 as of September 30, 2025 and December 31, 2024, respectively. For the three months ended September 30, 2025 and 2024, the Company recognized net unrealized gains of $ 20,827,000 and $ 32,767,000 , respectively, for the changes in fair market value of the marketable equity securities in the interim condensed consolidated statements of operations. For the nine months ended September 30, 2025 and 2024, the Company recognized net unrealized gains of $ 26,748,000 and $ 56,290,000 , respectively, for the changes in fair market value of the marketable equity securities in the interim condensed consolidated statements of operations. Gross unrealized gains related to available for sale marketable debt securities are $ 1,445,000 and $ 135,000 as of September 30, 2025 and December 31, 2024, respectively. Gross unrealized losses related to available for sale marketable debt securities are $ 2,554,000 and $ 5,449,000 as of September 30, 2025 and December 31, 2024, respectively. The Company’s unrealized losses in our available for sale marketable debt securities were determined to be non-credit related. The Company has not recognized any credit related impairments for the nine months ended September 30, 2025 and 2024. For the marketable debt securities in gross unrealized loss positions, (a) it is more likely than not that the Company will not be required to sell the investment securities before recovery of the unrealized losses, and (b) the Company expects that the contractual principal and interest will be received on the investment securities. Proceeds from the sale of available for sale marketable securities during the nine months ended September 30, 2025 and 2024 were $ 64,689,000 and $ 39,776,000 , respectively. Investment gains of $ 872,000 and $ 331,000 were realized on these sales during the nine months ended September 30, 2025 and 2024, respectively. Note 10 – Fair Value Measurements The accounting standard for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. This accounting standard establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs that may be used to measure fair value: Level 1 – The valuation is based on quoted prices in active markets for identical instruments. Level 2 – The valuation is based on observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model–based valuation techniques for which all significant assumptions are observable in the market. Level 3 – The valuation is based on unobservable inputs that are supported by minimal or no market activity and that are significant to the fair value of the instrument. Level 3 valuations are typically performed using pricing models, discounted cash flow methodologies, or similar techniques that incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument, or valuations that require significant management judgment or estimation. 22 Table of Contents A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The following table summarizes fair value measurements by level at September 30, 2025 and December 31, 2024 for assets and liabilities measured at fair value on a recurring basis (in thousands) : Fair Value Measurements Using September 30, 2025 Fair Value Quoted Prices in Active Markets For Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Cash and cash equivalents $ 130,629 $ 130,629 $ – $ – Restricted cash and cash equivalents 20,905 20,905 – – Marketable equity securities 184,236 184,236 – – Corporate debt securities 63,095 34,482 28,613 – Asset–backed securities 12,942 – 12,942 – U.S. Treasury securities 43,771 43,771 – – State and municipal securities 3,104 796 2,308 – Total financial assets $ 458,682 $ 414,819 $ 43,863 $ – Fair Value Measurements Using December 31, 2024 Fair Value Quoted Prices in Active Markets For Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Cash and cash equivalents $ 76,121 $ 76,121 $ – $ – Restricted cash and cash equivalents 20,801 20,801 – – Marketable equity securities 163,254 163,254 – – Corporate debt securities 57,471 43,656 13,815 – Asset–backed securities 14,410 – 14,410 – U.S. Treasury securities 44,186 44,186 – – State and municipal securities 3,737 806 2,931 – Total financial assets $ 379,980 $ 348,824 $ 31,156 $ – Note 11 – Goodwill and Other Intangible Assets At September 30, 2025, we evaluated potential triggering events that might be indicators that our goodwill and indefinite lived intangibles were impaired. As a result of the review, there were no impairment indicators regarding the Company’s goodwill that required a quantitative test to be performed. However, our accounting estimates could materially change from period to period due to changing market factors. We will continue to monitor future events, changes in circumstances, and the potential impact thereof. If actual results are not consistent with our assumptions and estimates, we may be exposed to future goodwill impairment losses. 23 Table of Contents At September 30, 2025, the following table represents the activity related to our goodwill by segment ( in thousands ): Inpatient Services Homecare and Hospice All Other Total January 1, 2025 $ 5,924 $ 164,554 $ – $ 170,478 Additions – – – – September 30, 2025 $ 5,924 $ 164,554 $ – $ 170,478 Indefinite-lived intangible assets consist of the following (in thousands) : September 30, 2025 December 31, 2024 Trade names $ 15,896 $ 15,896 Certificates of need 1,756 1,756 Licenses 2,212 2,212 Total $ 19,864 $ 19,864 Note 12 - Stock Repurchase Program During the nine months ended September 30, 2025, the Company repurchased 88,738 shares of its common stock for a total cost of $ 9,566,000 . During the nine months ended September 30, 2024, the Company repurchased 133,151 shares of its common stock for a total cost of $ 13,502,000 . The shares were funded from cash on hand and were cancelled and returned to the status of authorized but unissued. Note 13 – Stock – Based Compensation NHC recognizes stock–based compensation expense for all stock options granted over the requisite service period using the fair value at the date of grant using the Black–Scholes pricing model. Stock–based compensation totaled $ 1,239,000 and $ 1,093,000 for the three months ended September 30, 2025 and 2024, respectively. Stock-based compensation totaled $ 3,499,000 and $ 3,062,000 for the nine months ended September 30, 2025 and 2024, respectively. Stock–based compensation is included in “Salaries, wages and benefits” in the interim condensed consolidated statements of operations. At September 30, 2025, the Company had $ 7,185,000 of unrecognized compensation cost related to unvested stock–based compensation awards. This unrecognized compensation cost will be amortized over an approximate two -year period. Stock Options The following table summarizes the significant assumptions used to value the options granted for the nine months ended September 30, 2025 and for the year ended December 31, 2024. September 30, 2025 December 31, 2024 Risk–free interest rate 4.13 % 4.40 % Expected volatility 27.0 % 24.1 % Expected life, in years 2.9 2.9 Expected dividend yield 2.80 % 2.63 % The following table summarizes our outstanding stock options for the nine months ended September 30, 2025 and for the year ended December 31, 2024. Number of Shares Weighted Average Exercise Price Aggregate Intrinsic Value Options outstanding at January 1, 2024 588,534 $ 61.30 $ – Options granted 297,783 94.42 – Options exercised ( 219,973 ) 64.73 – Options cancelled ( 35,102 ) 79.20 – Options outstanding at December 31, 2024 631,242 74.73 – Options granted 306,800 91.45 – Options exercised ( 142,364 ) 65.99 – Options cancelled ( 6,333 ) 78.77 – Options outstanding at September 30, 2025 789,345 $ 82.78 $ 30,575,000 Options exercisable at September 30, 2025 265,750 $ 73.96 $ 12,636,000 24 Table of Contents Options Outstanding September 30, 2025 Exercise Prices Weighted Average Exercise Price Weighted Average Remaining Contractual Life in Years 236,279 $ 53.94 - $ 71.64 $ 59.34 2.1 553,066 $ 90.62 - $ 106.48 92.79 4.0 789,345 $ 82.78 3.4 Note 14 – Income Taxes The Company's income tax provision as a percentage of our income before income taxes was 24.6 % and 26.4 % for the three months ended September 30, 2025 and 2024, respectively. The Company's income tax provision as a percentage of our income before income taxes was 25.2 % and 26.3 % for the nine months ended September 30, 2025 and 2024, respectively. Typically, these percentages vary from the U.S. federal statutory income tax rate of 21 % primarily due to state income taxes, excess tax benefits from stock-based compensation, benefits resulting from the lapsing of statute of limitations of items in our tax contingency reserve, and non-deductible expenses. 25 Table of Contents Our quarterly income tax provision, and our estimate of our annual effective income tax rate, is subject to variation due to several factors, including volatility based on the amount of pre-tax income or loss. The Company is no longer subject to U.S. federal and state examinations by tax authorities for years before 2021 (with certain state exceptions). On July 4, 2025, President Donald Trump signed into law the One Big Beautiful Bill Act (“OBBBA”). The OBBBA makes permanent key elements of the Tax Cuts and Jobs Act, including 100% bonus depreciation, domestic research cost expensing, and the business interest expense limitation. ASC 740, Income Taxes , requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the legislation is enacted. Consequently, as of the date of enactment, and during the year ended December 31, 2025, the Company continues to evaluate all deferred tax balances under the newly enacted tax law and identify any changes required to its financial statements as a result of the OBBBA. The Company is still evaluating the impact of the OBBBA, and the results of such evaluations will be reflected on the Company’s Form 10 -K for the year ended December 31, 2025. Note 15 – Long-Term Debt Long–term debt consists of the following ( dollars in thousands ): Interest rate at September 30, 2025 (Variable) Maturity September 30, 2025 December 31, 2024 Credit facility, interest payable monthly 5.7 % 2029 $ 73,125 $ 137,000 Less current portion ( 7,500 ) ( 7,500 ) Total long-term debt $ 65,625 $ 129,500 On August 1, 2024, the Company entered into a $ 200,000,000 senior credit facility with a five -year term consisting of a $ 150,000,000 term facility and a $ 50,000,000 revolving line of credit (the “Credit Facility”). The Credit Facility is for general corporate purposes, including working capital and acquisitions. The loans bear interest at either (i) Term Secured Overnight Financing Rate (“SOFR”) for interest periods of one, three or six months, plus the applicable margin or, at NHC’s option, (ii) the Base Rate plus the applicable margin. The applicable margin is an interest rate per annum between 1.30 % and 1.65 % for Term SOFR loans and between .30% and .65% for Base Rate loans, depending upon the Company meeting certain conditions. The revolving line of credit contains a commitment fee equal to 0.25 % of the unused borrowing capacity. There are no amounts outstanding on the revolving line of credit at September 30, 2025. NHC’s obligations under the Credit Facility are unsecured. The Credit Facility contains customary representations and warranties, financial covenants, and other customary affirmative and negative covenants. The Credit Facility also contains customary events of default. As of September 30, 2025, the Company is compliant with all financial covenants. Based on level 2 inputs, the carrying value of the Company's long-term debt is considered to approximate the fair value of such debt based upon the interest rates that the Company believes it can currently obtain for similar debt. The aggregate maturities of long–term debt for the five years subsequent to September 30, 2025 are as follows (in thousands) : Long–Term Debt 2025 $ 1,875 2026 7,500 2027 7,500 2028 7,500 2029 48,750 Total $ 73,125 26 Table of Contents Note 16 – Contingencies, Commitments and Other Matters National Health Investors, Inc. Lease As discussed in Note 7 - Long-Term Leases, our wholly-owned subsidiary, NHC/OP, L.P. ("the tenant"), is the tenant under a Master Agreement to Lease with NHI dated October 17, 1991, as amended (the "Master Lease"), for 32 skilled nursing facilities and three independent living centers (collectively, the "Leased Property"). On July 29, 2025, the Tenant received a letter from NHI notifying the Tenant of allegations it was not in compliance with four non-monetary provisions of the Master Lease and requesting compliance by August 29, 2025. The Tenant's legal counsel sent NHI's legal counsel a letter dated August 15, 2025 stating the Tenant's belief that the Tenant was in compliance with the Master Lease and requesting clarifying information so that it could expeditiously and adequately address any alleged potential non-compliance with the Master Lease. NHI’s counsel’s first substantive response to the August 15, 2025 letter was a letter dated September 8, 2025 formally alleging the Tenant is in default under the Master Lease as a result of the Tenant’s non-compliance with the same four non-monetary provisions of the Master Lease, stating that the cure period under the Master Lease (discussed below) was commencing, and stating that failure to cure the alleged defaults within thirty ( 30 ) days would result in an “Event of Default” under the Master Lease, entitling the Landlord to pursue any and all remedies under the Master Lease. The September 8, 2025 letter also included limited clarification on the allegations made in the July 29, 2025 letter. Under the Master Lease, an “Event of Default” occurs with respect to the areas of alleged non-monetary non-compliance, if such non-compliance continues for a period of thirty ( 30 ) days after written notice is given to the Tenant by NHI; or, if by reason of the nature of such non-compliance, it cannot be remedied within thirty ( 30 ) days, the Tenant fails to proceed with reasonable diligence (satisfactory to NHI) after receipt of the notice to cure the alleged non-compliance. The Tenant continues to dispute that the alleged areas of non-monetary non-compliance represent a default under the Master Lease and believes that any areas that do represent non-compliance are subject only to the obligation to proceed with reasonable diligence to cure the alleged non-compliance, and that the Tenant has so proceeded. The Tenant continues to review the allegations and has been and intends to continue to remain in communication with NHI and NHI’s counsel concerning NHI’s allegations. Prior to the Landlord’s initial July 29, 2025 letter, the Tenant began negotiations with the Landlord concerning the Master Lease and intends to continue these negotiations while addressing the non-monetary matters alleged in the September 8, 2025 letter. Any termination of the Master Lease that deprives the Tenant of the benefit of the continuing right to occupy the Leased Property through the renewal terms of the Master Lease could have a material adverse impact on our results of operations, cash flows and financial position. Based on our present knowledge of the facts, we do not believe a material loss is probable. Accrued Risk Reserves We have wholly–owned limited purpose insurance companies that insure risks related to workers’ compensation and general and professional liability insurance claims both for our owned and leased entities and certain of the entities to which we provide management or accounting services. The liability we have recognized for reported claims and estimates for incurred but unreported claims totals $ 114,032,000 and $ 103,616,000 at September 30, 2025 and December 31, 2024, respectively. The liability is included in accrued risk reserves in the interim condensed consolidated balance sheets and is subject to adjustment for actual claims incurred. It is possible that these claims plus unasserted claims could exceed our insurance coverages and our reserves, which could have a material adverse effect on our consolidated financial position, results of operations and cash flows. As a result of the terms of our insurance policies and our use of wholly owned limited purpose insurance companies, we have retained significant insurance risk with respect to workers’ compensation and general and professional liability. We consider the professional services of independent actuaries to assist us in estimating our exposures for claims obligations (for both asserted and unasserted claims) related to deductibles and exposures in excess of coverage limits, and we maintain reserves for these obligations. Such estimates are based on many variables including historical and statistical information and other factors. Workers ’ Compensation For workers’ compensation, we utilize a wholly–owned Tennessee domiciled property/casualty insurance company to write coverage for NHC affiliates and for third–party customers. Policies are written for a duration of twelve months and cover only risks related to workers’ compensation losses. All customers are companies which operate in the senior care industry. Business is written on a direct basis. General and Professional Liability Insurance and Lawsuits The senior care industry has experienced significant increases in both the number of personal injury/wrongful death claims and in the severity of awards based upon alleged negligence by skilled nursing facilities and their employees in providing care to residents. The Company has been, and continues to be, subject to claims and legal actions that arise in the ordinary course of business, including potential claims related to patient care and treatment. The defense of these lawsuits may result in significant legal costs, regardless of the outcome, and can result in large settlement amounts or damage awards. Additional insurance is purchased through third party providers that serve to supplement the coverage provided through our wholly owned captive insurance company. There is certain additional litigation incidental to our business, none of which, based upon information available to date, would be material to our financial position, results of operations, or cash flows. In addition, the long–term care industry is continuously subject to scrutiny by governmental regulators, which could result in litigation or claims related to regulatory compliance matters. 27 Table of Contents Civil Investigative Demand / Qui Tam Complaint On or about May 21, 2024, Caris Healthcare, L.P. (“Caris”) received a Civil Investigative Demand (“CID”) from the U.S. Attorney’s Office for the Eastern District of Tennessee. The CID requested the production of certain medical records for patients at Caris’ Nashville office and other documents related to the billing for hospice services for the period of January 1, 2019, through the date of the CID. The Company cooperated with respect to the requests. On June 23, 2025, a Notice of Election to Decline Intervention (the “Notice of Declination”) was filed by the United States of America, the State of Tennessee, the Commonwealth of Virginia, and the State of Georgia, in a case styled U.S. ex rel. Marshall v. Caris HealthCare, L.P., Case No. 3:23 -CV- 00330, in the U.S. District Court for the Eastern District of Tennessee (the “Qui Tam Case”). Subsequent to the Notice of Declination filing, an underlying qui tam complaint, originally filed on September 12, 2023, was unsealed. Following the Notice of Declination, the relators filed a Notice of Voluntary Dismissal on September 25, 2025, which concluded the matter. Governmental Regulations Laws and regulations governing Medicare, Medicaid and other federal healthcare programs are complex and subject to interpretation. Management believes that it is following all applicable laws and regulations in all material respects. However, compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties, and exclusions from the Medicare, Medicaid and other federal healthcare programs. Indemnities From time to time, the Company enters into certain types of contracts that contingently require it to indemnify parties against third -party claims. These contracts primarily include (i) certain real estate leases, under which the Company may be required to indemnify property owners or prior facility operators for post-transfer liabilities and other claims arising from the Company’s use of the applicable premises, (ii) operations transfer agreements, in which the Company agrees to indemnify past operators of facilities against certain liabilities arising from the transfer of the operation and/or the operation thereof after the transfer to the Company or its subsidiary, (iii) certain lending agreements, under which the Company may be required to indemnify the lender against various claims and liabilities, (iv) certain agreements by and between the Company and/or its subsidiaries or affiliates, and (v) certain agreements with the Company officers, directors and others, under which the Company may be required to indemnify such persons for liabilities arising out of the nature of their relationship to the Company and/or its subsidiaries and affiliates. The terms of such obligations vary by contract and, in most instances, do not expressly state or include a specific or maximum dollar amount. Generally, amounts under these contracts cannot be reasonably estimated until a specific claim is asserted. Note 17 – Subsequent Events In October 2025, we sent NHI a notice of our exercise of our option to renew the Master Lease for one five -year term commencing January 1, 2027. See Note 7 - Long-Term Leases and Note 16 - Contingencies and Commitments for further discussion concerning the Master Lease.