NATIONAL HEALTHCARE CORP 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of National HealthCare Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of National HealthCare Corporation (the "Company") as of December 31, 2025 , the related consolidated statements of operations , comprehensive income, equity, and cash flows, for the period ended December 31, 2025, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and the results of its operations and its cash flows for the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2026, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 44 Estimation of Accrued Risk Reserves - General and Professional Liability Claims — Refer to Note 16 ⁠ to the financial statements Critical Audit Matter Description The Company has retained significant self–insured risk for general and professional liability claims related to patient care and treatment. The accrued risk reserves include a liability for reported claims and estimates for projections of asserted and unasserted claims. The Company uses independent actuaries to assist management in estimating the claims obligations (for both asserted and unasserted claims) related to exposures in excess of coverage limits. Such estimates are based on many variables including historical and statistical information and other factors. We identified the evaluation of the Company's accrued risk reserves for professional liability claims as a critical audit matter because the projection of settlement values for reported and unreported claims involves significant estimation by management. Auditing whether reserves for professional liability claims were appropriately recorded as of December 31, 2025 required a high degree of auditor judgment and an increased extent of effort, including the need to involve our actuarial specialists. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the estimation of accrued risk reserves for professional liability claims include the following, among others: · Tested the effectiveness of management’s internal controls over the estimation of professional liability claims, including those over the projection of obligations for asserted and unasserted claims. · Obtained and reviewed the Company’s insurance policies and compared the coverage and terms to the assumptions used by management. · Tested the underlying data that served as the basis for the actuarial analysis, including historical claims, to test that the inputs to the actuarial estimate were accurate and complete. · With the assistance of our actuarial specialists, evaluated the methods and assumptions used by management to estimate the self-insurance reserves for general and professional liability claims by: • Performing a retrospective review by comparing management’s prior year estimate to reported and paid losses for professional claims in the current year. • Developing an independent range of estimated losses for the general and professional liability reserve and comparing management's estimate to our estimated independent range. /s/ Deloitte & Touche LLP Nashville, Tennessee February 26, 2026 We have served as the Company's auditor since 2025. 45 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of National HealthCare Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of National HealthCare Corporation (the Company) as of December 31, 2024, the related consolidated statements of operations, comprehensive income, equity and cash flows for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Ernst & Young LLP We served as the Company's auditor from 2009 to 2025. Nashville, Tennessee February 28, 2025 46 NATIONAL HEALTHCARE CORPORATION Consolidated Statements of Operations (in thousands, except share and per share amounts) Year Ended December 31, 2025 2024 2023 Revenues: Net patient revenues $ 1,469,631 $ 1,251,759 $ 1,087,614 Other revenues 48,150 46,178 53,930 Government stimulus income – 9,445 – Net operating revenues and stimulus income 1,517,781 1,307,382 1,141,544 Costs and expenses: Salaries, wages and benefits 921,080 810,930 712,344 Other operating 377,202 321,390 288,183 Facility rent 46,227 43,182 41,525 Depreciation and amortization 44,920 41,985 42,034 Total costs and expenses 1,389,429 1,217,487 1,084,086 Income from operations 128,352 89,895 57,458 Other income (expense): Non-operating income 18,107 19,690 16,660 Interest expense ( 6,371 ) ( 4,135 ) ( 324 ) Unrealized gains on marketable equity securities 22,344 30,958 14,944 Income before income taxes 162,432 136,408 88,738 Income tax provision ( 39,826 ) ( 34,322 ) ( 23,450 ) Net income 122,606 102,086 65,288 Net (income) loss attributable to noncontrolling interest ( 2,591 ) ( 159 ) 1,510 Net income attributable to National HealthCare Corporation $ 120,015 $ 101,927 $ 66,798 Earnings per share attributable to National HealthCare Corporation stockholders: Basic $ 7.76 $ 6.62 $ 4.36 Diluted $ 7.67 $ 6.53 $ 4.34 Weighted average common shares outstanding: Basic 15,472,185 15,393,782 15,310,142 Diluted 15,646,338 15,598,528 15,377,343 Dividends declared per common share $ 2.53 $ 2.42 $ 2.34 The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 47 NATIONAL HEALTHCARE CORPORATION Consolidated Statements of Comprehensive Income (in thousands) Year Ended December 31, 2025 2024 2023 Net income $ 122,606 $ 102,086 $ 65,288 Other comprehensive income: Unrealized gains on investments in marketable debt securities 3,937 909 3,434 Reclassification adjustment for realized losses on sale of marketable debt securities 660 1,388 17 Income tax expense related to items of other comprehensive income ( 660 ) ( 409 ) ( 523 ) Other comprehensive income, net of tax 3,937 1,888 2,928 Net (income) loss attributable to noncontrolling interest ( 2,591 ) ( 159 ) 1,510 Comprehensive income attributable to National HealthCare Corporation $ 123,952 $ 103,815 $ 69,726 The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 48 NATIONAL HEALTHCARE CORPORATION Consolidated Balance Sheets (in thousands) December 31, 2025 2024 Assets Current Assets: Cash and cash equivalents $ 92,829 $ 76,121 Restricted cash and cash equivalents, current portion 18,118 19,568 Marketable equity securities 162,972 140,064 Restricted marketable equity securities 17,197 23,190 Restricted marketable debt securities, current portion 18,062 11,529 Accounts receivable 139,002 135,325 Inventories 7,795 9,039 Prepaid expenses and other assets 5,845 9,572 Total current assets 461,820 424,408 Property and Equipment: Property and equipment, at cost 1,308,891 1,281,736 Accumulated depreciation and amortization ( 635,094 ) ( 597,447 ) Net property and equipment 673,797 684,289 Other Assets: Restricted cash and cash equivalents, less current portion 1,240 1,233 Restricted marketable debt securities, less current portion 105,231 108,275 Deposits and other assets 7,478 8,837 Operating lease – right-of-use assets 47,778 79,167 Goodwill 170,478 170,478 Intangible assets 19,864 19,864 Investments in unconsolidated companies 38,733 27,878 Total other assets 390,802 415,732 Total assets $ 1,526,419 $ 1,524,429 The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 49 NATIONAL HEALTHCARE CORPORATION Consolidated Balance Sheets (in thousands, except share and per share amounts) December 31, 2025 2024 Liabilities and Equity Current Liabilities: Trade accounts payable $ 22,767 $ 25,493 Operating lease liabilities, current portion 33,611 31,841 Accrued payroll 103,917 92,719 Amounts due to third party payors 13,739 15,351 Accrued risk reserves, current portion 36,180 31,096 Other current liabilities 25,977 21,377 Dividends payable 9,941 9,420 Long-term debt due within one year 7,500 7,500 Total current liabilities 253,632 234,797 Long-term debt 32,500 129,500 Operating lease liabilities, less current portion 13,461 45,925 Accrued risk reserves, less current portion 85,415 72,520 Refundable entrance fees 6,178 6,063 Deferred income taxes 42,687 35,550 Other noncurrent liabilities 18,031 16,911 Total liabilities 451,904 541,266 Equity: Common stock, $ .01 par value; 45,000,000 shares authorized; 15,536,427 and 15,450,003 shares, respectively, issued and outstanding 155 154 Capital in excess of par value 236,412 232,530 Retained earnings 832,984 752,193 Accumulated other comprehensive loss ( 779 ) ( 4,716 ) Total National HealthCare Corporation stockholders’ equity 1,068,772 980,161 Noncontrolling interest 5,743 3,002 Total equity 1,074,515 983,163 Total liabilities and equity $ 1,526,419 $ 1,524,429 The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 50 NATIONAL HEALTHCARE CORPORATION Consolidated Statements of Cash Flows (in thousands) Year Ended December 31, 2025 2024 2023 Cash Flows From Operating Activities: Net income $ 122,606 $ 102,086 $ 65,288 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 44,920 41,985 42,034 Equity in earnings of unconsolidated investments ( 218 ) ( 589 ) ( 2,015 ) Distributions from unconsolidated investments 616 512 470 Unrealized gains on marketable equity securities ( 22,344 ) ( 30,958 ) ( 14,944 ) (Gains) losses on sale of marketable securities ( 1,167 ) ( 1,093 ) 667 Gain on sale of unconsolidated company – ( 1,024 ) – Gain on sale of property and equipment ( 3,606 ) – ( 6,230 ) Deferred income taxes 6,477 17,941 5,768 Stock–based compensation 4,399 4,160 2,782 Changes in operating assets and liabilities: Accounts receivable ( 3,677 ) ( 26,441 ) ( 8,559 ) Inventories 1,244 ( 599 ) ( 298 ) Prepaid expenses and other assets 4,574 6,283 ( 669 ) Operating lease obligations 695 273 ( 1,244 ) Trade accounts payable ( 2,726 ) 6,299 2,236 Accrued payroll 11,198 4,951 11,600 Amounts due to third party payors ( 1,612 ) ( 3,018 ) 1,738 Accrued risk reserves 17,979 357 790 Other current liabilities 4,600 ( 3,349 ) 5,376 Other noncurrent liabilities 1,120 ( 10,473 ) 6,426 Net cash provided by operating activities 185,078 107,303 111,216 Cash Flows From Investing Activities: Purchases of property and equipment ( 36,446 ) ( 27,600 ) ( 27,901 ) Acquisition of White Oak Manor, net of cash acquired – ( 215,896 ) – Investments in unconsolidated companies ( 5,629 ) ( 14,298 ) ( 4,661 ) Purchases of marketable securities ( 65,188 ) ( 35,057 ) ( 29,501 ) Sale of marketable securities 72,893 51,970 47,396 Collections of (investments in) notes receivable 512 ( 9 ) ( 201 ) Acquisition of other businesses, net of cash acquired – 2,097 ( 2,700 ) Proceeds from sale of assets – 2,100 – Net cash used in investing activities ( 33,858 ) ( 236,693 ) ( 17,568 ) Cash Flows From Financing Activities: Borrowings under credit facility – 150,000 – Repayments under credit facility ( 97,000 ) ( 13,000 ) – Dividends paid to common stockholders ( 38,704 ) ( 36,964 ) ( 35,560 ) Issuance of common shares 14,214 14,268 313 Repurchase of common shares ( 14,730 ) ( 13,502 ) ( 2,482 ) Noncontrolling interest contributions 150 1,115 – Entrance fee deposits (refunds) 115 ( 313 ) 169 Debt issuance costs – ( 400 ) – Principal payments under finance lease obligations – ( 860 ) ( 4,985 ) Net cash (used in) / provided by financing activities ( 135,955 ) 100,344 ( 42,545 ) Net Increase (Decrease) in Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents 15,265 ( 29,046 ) 51,103 Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, Beginning of Period 96,922 125,968 74,865 Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, End of Period $ 112,187 $ 96,922 $ 125,968 Balance Sheet Classifications: Cash and cash equivalents $ 92,829 $ 76,121 $ 107,076 Restricted cash and cash equivalents 19,358 20,801 18,892 Total Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents $ 112,187 $ 96,922 $ 125,968 51 NATIONAL HEALTHCARE CORPORATION Consolidated Statements of Cash Flows (continued, in thousands) Year Ended December 31, 2025 2024 2023 Supplemental Information: Cash payments for interest $ 7,030 $ 3,416 $ 290 Cash payments for income taxes $ 24,719 $ 17,525 $ 14,571 The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 52 NATIONAL HEALTHCARE CORPORATION Consolidated Statements of Equity (in thousands, except for share and per share amounts) Common Stock Capital in Excess of Retained Accumulated Other Comprehensive Non- controlling Total Shares Amount Par Value Earnings Loss Interest Equity Balance at January 1, 2023 15,357,746 $ 153 $ 226,991 $ 656,664 $ ( 9,532 ) $ 3,238 $ 877,514 Net income – – – 66,798 – ( 1,510 ) 65,288 Other comprehensive loss – – – – 2,928 – 2,928 Stock–based compensation – – 2,782 – – – 2,782 Shares sold – options exercised 37,264 – 313 – – – 313 Repurchase of common shares ( 44,349 ) – ( 2,482 ) – – – ( 2,482 ) Dividends declared to common stockholders ($ 2.34 per share) – – – ( 35,863 ) – – ( 35,863 ) Balance at January 1, 2024 15,350,661 $ 153 $ 227,604 $ 687,599 $ ( 6,604 ) $ 1,728 $ 910,480 Net income – – – 101,927 – 159 102,086 Contributions attributable to noncontrolling interest – – – – – 1,115 1,115 Other comprehensive income – – – 1,888 – 1,888 Stock–based compensation – – 4,160 – – – 4,160 Shares sold – options exercised 232,493 1 14,268 – – – 14,269 Repurchase of common shares ( 133,151 ) – ( 13,502 ) – – – ( 13,502 ) Dividends declared to common stockholders ($ 2.42 per share) – – – ( 37,333 ) – – ( 37,333 ) Balance at January 1, 2025 15,450,003 $ 154 $ 232,530 $ 752,193 $ ( 4,716 ) $ 3,002 $ 983,163 Net income – – – 120,015 – 2,591 122,606 Contributions attributable to noncontrolling interest – – – – – 150 150 Other comprehensive income – – – – 3,937 – 3,937 Stock–based compensation – – 4,399 – – – 4,399 Shares sold – options exercised 213,762 1 14,213 – – – 14,214 Repurchase of common shares ( 127,338 ) – ( 14,730 ) – – – ( 14,730 ) Dividends declared to common stockholders ($ 2.53 per share) – – – ( 39,224 ) – – ( 39,224 ) Balance at December 31, 2025 15,536,427 $ 155 $ 236,412 $ 832,984 $ ( 779 ) $ 5,743 $ 1,074,515 The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 53 Notes to Consolidated Financial Statements Note 1 – Summary of Significant Accounting Policies Nature of Operations National HealthCare Corporation ("NHC" or "the Company") operates, manages or provides services to skilled nursing facilities, assisted living facilities, independent living facilities, home health care agencies, hospice agencies, and behavioral health hospitals located in 9 Southeastern and Midwestern states in the United States. The most significant part of our business relates to skilled and intermediate nursing care settings in which we also provide assisted living and retirement services, rehabilitative therapy services, memory and Alzheimer's care services, home health and hospice services, and behavioral health services. In addition, we provide insurance services, management and accounting services, and we lease properties to operators of skilled nursing and assisted living facilities. The health care environment has continually undergone changes with regard to federal and state reimbursement programs and other payor sources, compliance regulations, competition among other health care providers and patient care litigation issues. We continually monitor these industry developments as well as other factors that affect our business. Principles of Consolidation and Basis of Presentation The consolidated financial statements, which are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), include our wholly owned and controlled subsidiaries and affiliates. All significant intercompany transactions and balances have been eliminated in consolidation. 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. Use of Estimates 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. 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. 54 Other Revenues Other revenues include revenues from the provision of insurance services to other healthcare providers, management and accounting services to other long–term care 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 the actual revenue of the lessee is earned. Government Grants We account for government grants in accordance with International Accounting Standard (“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 year ended December 31, 2024, all conditions related to the Employee Retention Credit ("ERC") were met and the credit was recognized as government grant 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 5 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 as a reduction of “other operating expenses” in the consolidated financial statement of operations. 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 $ 27,498,000 , $ 26,236,000 , and $ 21,412,000 for the years ended December 31, 2025, 2024, and 2023, respectively. Cash and Cash Equivalents Cash equivalents include highly liquid investments with an original maturity of three months or less when purchased. Restricted Cash and Cash Equivalents and Restricted Marketable Securities Restricted cash and cash equivalents and restricted marketable securities represent assets that are primarily held by our wholly owned limited purpose insurance companies for workers' compensation and professional liability claims. Investments in Marketable Securities and Restricted 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/loss at each measurement date. For available for sale debt securities in an unrealized loss position, we first assess whether we intend to sell, or it is more likely than not that we will be required to sell the security before recovery of the amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s cost basis is written down to fair value through our results of operations. For debt securities that do not meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. If a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Realized gains and losses from securities are recognized in results of operations upon disposition of the securities using the specific identification method on a trade date basis. 55 Inventories Inventories consist generally of food and supplies and are valued at the lower of cost or market, with cost determined on a first–in, first–out (FIFO) basis. Property and Equipment Property and equipment are recorded at cost. 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. Expenditures for repairs and maintenance are charged to expense as incurred. Betterments, which significantly extend the useful life, are capitalized. We remove the costs and related allowances for accumulated depreciation or amortization from the accounts for properties sold or retired, and any resulting gains or losses are included in income. In accordance with ASC Topic 360, Property, Plant, and Equipment , we evaluate the recoverability of the carrying values of our properties on a property-by-property basis. We review our properties for recoverability when events or circumstances, including significant physical changes in the property, significant adverse changes in general economic conditions, and significant deteriorations of the underlying cash flows of the property, indicate that the carrying amount of the property may not be recoverable. The need to recognize impairment is based on estimated future undiscounted cash flows from a property over the remaining useful life compared to the carrying value of that property. If recognition of impairment is necessary, it is measured as the amount by which the carrying amount of the property exceeds the estimated fair value of the property. 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 December 31, 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 FASB ASC Topic 805, Business Combinations (Topic 805 ). 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. Such fair values that are not finalized for reporting periods following the acquisition date are estimated and recorded as provisional amounts during the measurement period. The measurement period is defined as the date through which all information required to identify and measure the consideration transferred, the assets acquired, the liabilities assumed and any noncontrolling interests has been obtained, limited to one year from the acquisition date. Goodwill generated from business combinations 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 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, 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. 56 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. 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. 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. In accordance with ASC Topic 350, Intangibles - Goodwill and Other ("ASC 350" ), the guidance provides the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, based on a review of qualitative factors, it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company performs a goodwill impairment test by comparing the carrying value of each reporting unit to its respective fair value. The Company determines the estimated fair value of each reporting unit using a discounted cash flow analysis. The fair value of the reporting unit is implied fair value of goodwill. In the event a reporting unit's carrying value exceeds its fair value, an impairment loss will be recognized. An impairment loss is measured by the difference between the carrying value of the reporting unit and its fair value. The Company elected to perform a qualitative assessment during both fiscal years 2025 and 2024 and determined for both periods that no indicators of impairment existed. 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. Accrued risk reserves represent the accrual for risks associated with workers’ compensation and professional liability claims. The accrued risk reserves include a liability for unpaid reported claims and estimates for incurred but unreported claims. Our policy with respect to a significant portion of our workers’ compensation and professional and general liability claims is to use an actuary to assist management in estimating our exposure for claims obligation (for both asserted and unasserted claims). We reassess our accrued risk reserves on a quarterly basis, with changes in estimated losses being recorded in the consolidated statements of operations in the period first identified. Other Current Liabilities Other current liabilities primarily represent accruals for current federal and state income taxes, real estate taxes and other current liabilities. Continuing Care Contracts and Refundable Entrance Fees We have continuing care retirement centers (“CCRC”) within our operations. Residents 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 actuarially 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 refundable entrance fees in the Company's consolidated balance sheets. The balances of refundable entrance fees as of December 31, 2025 and December 31, 2024 were $ 6,178,000 and $ 6,063,000 , respectively. We annually estimate the present value of the net 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 net cost of future services exceeds the related anticipated revenues, a liability is recorded (obligation to provide future services) with a corresponding charge to income. The obligation to provide future services is included in other noncurrent liabilities in the Company’s consolidated balance sheets. At December 31, 2025 and 2024, we have recorded a future service obligation in the amounts of $ 1,482,000 and $ 1,474,000 , respectively. Other Noncurrent Liabilities Other noncurrent liabilities include reserves primarily related to various uncertain income tax positions, deferred revenue, and obligations to provide 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. 57 Income Taxes We utilize ASC Topic 740, Income Taxes , which requires an asset and liability approach for financial accounting and reporting for income taxes. Under this guidance, deferred tax assets and liabilities are determined based upon differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax laws that will be in effect when the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. See Note 12 for further discussion of our accounting for income taxes. Also, under ASC Topic 740, Income Taxes , tax positions are evaluated for recognition using a more–likely–than–not threshold, and those tax positions requiring recognition are measured at the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. Liabilities for income tax matters include amounts for income taxes, applicable penalties, and interest thereon and are the result of the potential alternative interpretations of tax laws and the judgmental nature of the timing of recognition of taxable income. Noncontrolling Interest The noncontrolling interest in a subsidiary is presented within total equity in the Company’s consolidated balance sheets. The Company presents the noncontrolling interest and the amount of consolidated net income attributable to NHC in its 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. Stock – Based Compensation Stock–based awards granted include stock options, restricted stock units, and stock purchased under our employee stock purchase plan. Stock–based compensation cost is measured at the grant date, based on the fair value of the awards, and is recognized as expense over the requisite service period only for those equity awards expected to vest. The fair value of the restricted stock units is determined based on the stock price on the date of grant. We estimated the fair value of stock options and stock purchased under our employee stock purchase plan using the Black–Scholes model. This model utilizes the estimated fair value of common stock and requires that, at the date of grant, we use the expected term of the grant, the expected volatility of the price of our common stock, risk–free interest rates and expected dividend yield of our common stock. The fair value is amortized on a straight–line basis over the requisite service periods of the awards. Comprehensive Income ASC Topic 220, Comprehensive Income, requires that changes in the amounts of certain items, including unrealized gains and losses on marketable debt securities, be shown in the consolidated financial statements as comprehensive income. We report comprehensive income in the consolidated statements of comprehensive income and also in the consolidated statements of stockholders’ equity. Concentration of Credit Risks Our credit risks primarily relate to cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, marketable securities, and restricted marketable securities. Cash and cash equivalents are primarily held in bank accounts and overnight investments. Restricted cash and cash equivalents are primarily invested in commercial paper and certificates of deposit with financial institutions and other interest-bearing accounts. Accounts receivable consist primarily of amounts due from patients (funded through Medicare, Medicaid, other contractual programs and through private payors) and from other health care companies for management, accounting and other services. We perform continual credit evaluations of our clients and maintain appropriate allowances for doubtful accounts on any accounts receivable proving uncollectible, and continually monitor and adjust these allowances as necessary. Marketable securities and restricted marketable securities are held primarily in accounts with brokerage institutions. At any point in time we have funds in our operating accounts and restricted cash accounts that are with third party financial institutions. These balances in the U.S. may exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. While we monitor the cash balances in our operating accounts, these cash and restricted cash balances could be impacted if the underlying financial institutions fail or could be subject to other adverse conditions in the financial markets. Our financial instruments are subject to the possibility of loss of the carrying values as a result of the failure of other parties to perform according to their contractual obligations. We evaluate the need to provide reserves for potential credit losses on our financial instruments based on management's periodic review of the portfolio on an instrument-by-instrument basis. 58 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, with early adoption permitted and may be applied prospectively or retrospectively to prior periods. The Company has adopted the standard prospectively and has included the appropriate disclosures in our notes to the financial statements. 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 comparative purposes to conform to the presentation in the current-year financial statements. 59 Note 2 – 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). Year Ended December 31, 2025 2024 2023 Inpatient services $ 1,315,545 $ 1,111,300 $ 956,077 Homecare and hospice services 154,086 140,459 131,537 Total net patient revenues $ 1,469,631 $ 1,251,759 $ 1,087,614 60 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: Year Ended December 31, Source 2025 2024 2023 Medicare 31 % 33 % 34 % Managed Care 12 % 10 % 10 % Medicaid 30 % 29 % 30 % Private Pay and Other 27 % 28 % 26 % Total 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. 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 $ 7,246,000 , $ 12,749,000 and $ 20,214,000 in net patient revenues for these supplemental Medicaid payments for the years ended December 31, 2025, 2024, and 2023, respectively. 61 Third Party Payors Laws and regulations governing the 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 $ 13,739,000 and $ 15,351,000 as of December 31, 2025 and 2024, respectively, for various Medicare, Medicaid, and Managed Care claims reviews and current and prior year cost reports. Note 3 – 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). Year Ended December 31, 2025 2024 2023 Rental income $ 24,966 $ 24,042 $ 23,926 Management and accounting service fees 18,185 17,237 18,544 Insurance services 3,405 3,344 3,857 Other 1,594 1,555 1,373 Gain on sale of property and equipment – – 6,230 Total other revenues $ 48,150 $ 46,178 $ 53,930 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 6 – 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. Rental income reflected in the consolidated statements of operations consisted of the following (in thousands) : Year Ended December 31, 2025 2024 2023 Operating lease payments $ 22,929 $ 22,994 $ 22,928 Variable lease payments 2,037 1,048 998 Total rental income $ 24,966 $ 24,042 $ 23,926 62 Variable lease payments are based on revenue increases as compared to a base year. The following table sets forth the undiscounted cash flows for future minimum lease payments receivable for leases in effect at December 31, 2025 ( in thousands ): 2026 $ 23,429 2027 3,095 2028 3,028 2029 3,022 2030 3,022 Thereafter – Total future minimum lease payments $ 35,596 Management Fees from National We have managed skilled nursing facilities for National since 1988, and we currently manage five facilities. See Note 17 regarding our relationship with National. During 2025, 2024 and 2023, we recognized approximately $ 5,799,000 , $ 5,643,000 , and $ 5,200,000 , respectively, of management fees and interest on management fees from National. Unrecognized and unpaid management fees and interest on management fees from National total $ 18,730,000 and $ 18,975,000 at December 31, 2025 and 2024, respectively. The unpaid fees from these five facilities, because collection of substantially all of the contract consideration was not probable when the performance obligation was satisfied, will be recognized as revenues only in the period in which the amounts are received. Under the terms of our management agreement with National, the payment of these fees to us may be subordinated to other expenditures of the five skilled nursing facilities. We continue to manage these facilities so that we may be able to collect our fees in the future and because the incremental savings from discontinuing services to a facility may be small compared to the potential benefit. We may receive payment for the unrecognized management fees in whole or in part in the future only if cash flows from the operating and investing activities of centers or proceeds from the sale of the centers are sufficient to pay the fees. There can be no assurance that such future improved cash flows will occur. Management Fees and Financial and Accounting Services for Other Healthcare Centers We provide management services and financial and accounting services to certain healthcare facilities (in addition to the five National centers) operated by third party owners. For the years ended December 31, 2025, 2024 and 2023, we recognized management fees and financial and accounting fees of $ 12,386,000 , $ 11,594,000 , and $ 13,344,000 from these centers, respectively. Insurance Services For workers’ compensation insurance services, the premium revenues reflected in the consolidated statements of operations for the years ended December 31, 2025, 2024 and 2023 were $ 2,247,000 , $ 2,186,000 , and $ 2,611,000 , respectively. Associated losses and expenses are reflected in the consolidated statements of operations as "Salaries, wages and benefits." For professional liability insurance services, the premium revenues reflected in the consolidated statements of operations for the years ended December 31, 2025, 2024 and 2023 were $ 1,158,000 , $ 1,158,000 , and $ 1,246,000 , respectively. Associated losses and expenses including those for self–insurance are included in the consolidated statements of operations as "Other operating costs and expenses". Gain on Sale of Property and Equipment In December 2023, we contributed land to a newly-formed limited liability company resulting in an equity interest in the new joint venture entity. The fair value of the land contributed to the new entity was $ 8,000,000 . The related cost basis of the contributed land was $ 1,770,000 , which resulted in a gain of $ 6,230,000 . Note 4 – Non – Operating Income Non–operating income includes equity in earnings of unconsolidated investments, dividends and other realized gains and losses on marketable securities, and interest income (in thousands) . Year Ended December 31, 2025 2024 2023 Interest income $ 9,844 $ 10,104 $ 8,383 Dividends and net realized gains or losses on the sale of securities 8,045 7,973 6,262 Equity in earnings of unconsolidated investments 218 589 2,015 Gain on sale of unconsolidated company – 1,024 – Total non-operating income $ 18,107 $ 19,690 $ 16,660 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 . 63 Note 5 – 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. 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 tables set forth the Company’s consolidated statements of operations by business segment (in thousands ): Year Ended December 31, 2025 Inpatient Services Homecare and Hospice All Other Total Revenues: Net patient revenues $ 1,315,545 $ 154,086 $ – $ 1,469,631 Other revenues 1,467 – 46,683 48,150 Net operating revenues 1,317,012 154,086 46,683 1,517,781 Costs and Expenses: Salaries, wages and benefits 775,477 93,535 52,068 921,080 Other operating 336,746 27,537 12,919 377,202 Facility rent 35,972 2,373 7,882 46,227 Depreciation and amortization 41,066 581 3,273 44,920 Total costs and expenses 1,189,261 124,026 76,142 1,389,429 Income (loss) from operations 127,751 30,060 ( 29,459 ) 128,352 Non-operating income – – 18,107 18,107 Interest expense ( 6,371 ) – – ( 6,371 ) Unrealized gains on marketable equity securities – – 22,344 22,344 Income before income taxes $ 121,380 $ 30,060 $ 10,992 $ 162,432 Year Ended December 31, 2024 Inpatient Services Homecare and Hospice All Other Total Revenues: Net patient revenues $ 1,111,300 $ 140,459 $ – $ 1,251,759 Other revenues 1,315 – 44,863 46,178 Government stimulus income – – 9,445 9,445 Net operating revenues and stimulus income 1,112,615 140,459 54,308 1,307,382 Costs and Expenses: Salaries, wages and benefits 668,029 85,712 57,189 810,930 Other operating 280,867 25,927 14,596 321,390 Facility rent 33,787 2,295 7,100 43,182 Depreciation and amortization 37,988 737 3,260 41,985 Total costs and expenses 1,020,671 114,671 82,145 1,217,487 Income (loss) from operations 91,944 25,788 ( 27,837 ) 89,895 Non-operating income – – 19,690 19,690 Interest expense ( 4,135 ) – ( 4,135 ) Unrealized gains on marketable equity securities – – 30,958 30,958 Income before income taxes $ 87,809 $ 25,788 $ 22,811 $ 136,408 64 Year Ended December 31, 2023 Inpatient Services Homecare and Hospice All Other Total Revenues: Net patient revenues $ 956,077 $ 131,537 $ – $ 1,087,614 Other revenues 1,141 – 52,789 53,930 Net operating revenues 957,218 131,537 52,789 1,141,544 Costs and Expenses: Salaries, wages and benefits 589,279 80,610 42,455 712,344 Other operating 254,559 23,529 10,095 288,183 Facility rent 32,542 2,172 6,811 41,525 Depreciation and amortization 38,172 786 3,076 42,034 Total costs and expenses 914,552 107,097 62,437 1,084,086 Income (loss) from operations 42,666 24,440 ( 9,648 ) 57,458 Non-operating income – – 16,660 16,660 Interest expense ( 324 ) – – ( 324 ) Unrealized gains on marketable equity securities – – 14,944 14,944 Income before income taxes $ 42,342 $ 24,440 $ 21,956 $ 88,738 Note 6 – Long – Term Leases Operating Leases At December 31, 2025, we lease from NHI the real property of 32 skilled nursing facilities and three independent living centers under one master 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 lease property as negotiated between the parties, without including any value attributable to improvements to the lease property voluntarily made by us at our expense. 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 16 – Contingencies, Commitments and Other Matters for further discussion of the lease. The annual base rent is $ 32,225,000 in 2025 and $ 31,975,000 in 2026 with the lease term expiring at December 31, 2026. The percentage rent is based on a quarterly calculation of revenue increases and is payable on a quarterly basis. Percentage rent expense under the NHI lease agreements for 2025, 2024, and 2023 was $ 8,171,000 , $ 6,289,000 and $ 5,549,000 , respectively. We have a right of first refusal with NHI to purchase any of the properties should NHI receive an offer from an unrelated party during the term of the lease or up to 180 days after termination of the related lease. 65 Minimum Lease Payments The following table summarizes the maturity of our operating lease liabilities as of December 31, 2025 ( in thousands ): Operating Leases 2026 $ 35,548 2027 2,781 2028 2,117 2029 1,769 2030 1,515 Thereafter 10,361 Total minimum lease payments $ 54,091 Less: amounts representing interest ( 7,019 ) Present value of future minimum lease payments 47,072 Less: current portion ( 33,611 ) Noncurrent lease liabilities $ 13,461 As of December 31, 2025 and 2024, the weighted average remaining lease term is 4.0 years and 3.7 years, respectively. As of December 31, 2025 and 2024, the weighted average discount rate used to determine lease liabilities is 6.7 % and 7.0 %, respectively. Lease Costs Lease costs recorded in the consolidated statement of operations are as follows (in thousands): December 31, 2025 2024 2023 Operating lease costs: $ $ $ Operating lease costs 36,850 35,669 34,953 Variable lease costs 8,171 6,289 5,549 Short-term lease costs 1,206 1,224 1,023 Total operating lease costs $ 46,227 $ 43,182 $ 41,525 Cash paid for amounts included in the measurement of lease liabilities were $ 36,155,000 , $ 35,394,000 and $ 36,198,000 for the years ended December 31, 2025, 2024 and 2023, respectively. 66 Note 7 – Earning Per Share 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 share and per share amounts) : Year Ended December 31, 2025 2024 2023 Basic: Weighted average common shares outstanding 15,472,185 15,393,782 15,310,142 Net income attributable to common stockholders of National Healthcare Corporation $ 120,015 $ 101,927 $ 66,798 Earnings per common share, basic $ 7.76 $ 6.62 $ 4.36 Diluted: Weighted average common shares outstanding 15,472,185 15,393,782 15,310,142 Dilutive effect of stock options 174,153 204,746 67,201 Assumed average common shares outstanding 15,646,338 15,598,528 15,377,343 Net income attributable to common stockholders of National Healthcare Corporation $ 120,015 $ 101,927 $ 66,798 Earnings per common share, diluted $ 7.67 $ 6.53 $ 4.34 For the years ended December 31, 2025, 2024 and 2023, there were no stock options excluded from the calculation of diluted weighted average shares of common stock outstanding. Note 8 – Investments in Marketable Securities Marketable securities consist of the following (in thousands) : December 31, 2025 December 31, 2024 Book Value Fair Value Book Value Fair Value Investments available for sale: Marketable equity securities $ 30,176 $ 162,972 $ 30,176 $ 140,064 Restricted investments available for sale: Marketable equity securities 13,104 17,197 18,534 23,190 Corporate debt securities 58,458 58,898 58,927 57,471 Asset–backed securities 16,886 16,236 15,593 14,410 U.S. Treasury securities 43,384 42,836 46,811 44,186 State and municipal securities 5,282 5,323 3,787 3,737 $ 167,290 303,462 $ 173,828 $ 283,058 Included in the marketable equity securities available for sale are the following (in thousands, except share amounts) : December 31, 2025 December 31, 2024 Shares Cost Fair Value Shares Cost Fair Value NHI Common Stock 1,630,642 $ 24,734 $ 124,532 1,630,642 $ 24,734 $ 113,003 67 The amortized cost and estimated fair value of debt securities classified as available for sale, by contractual maturity, are as follows (in thousands) : December 31, 2025 December 31, 2024 Cost Fair Value Cost Fair Value Maturities: Within 1 year $ 14,309 $ 14,236 $ 25,707 $ 25,317 1 to 5 years 69,316 68,390 66,117 63,379 6 to 10 years 40,385 40,667 32,648 30,606 Over 10 years − − 646 502 $ 124,010 $ 123,293 $ 125,118 $ 119,804 Gross unrealized gains related to marketable equity securities are $ 137,436,000 and $ 115,259,000 as of December 31, 2025 and 2024, respectively. Gross unrealized losses related to marketable equity securities are $ 547,000 and $ 715,000 as of December 31, 2025 and 2024, respectively. For the years ended December 31, 2025, 2024, and 2023, the Company recognized net unrealized gains of $ 22,344,000 , $ 30,958,000 , and $ 14,944,000 respectively, in the consolidated statements of operations. Gross unrealized gains related to available for sale marketable debt securities are $ 1,464,000 and $ 135,000 as of December 31, 2025 and 2024, respectively. Gross unrealized losses related to available for sale marketable debt securities are $ 2,181,000 and $ 5,449,000 as of December 31, 2025 and 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 years ended December 31, 2025 and 2024. 68 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 nor does the Company have the intent to sell before recovery of 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 years ended December 31, 2025, 2024, and 2023 were $ 72,893,000 , $ 51,970,000 , and $ 47,396,000 , respectively. Net investment gains of $ 1,167,000 and $ 1,093,000 and net investment losses of $ 667,000 were realized on these sales during the years ended December 31, 2025, 2024, and 2023, respectively. Note 9 – 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. 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 Company's non-financial assets, which includes goodwill, intangible assets, property and equipment and right-of-use assets, are not required to be measured at fair value on a recurring basis. However, on a periodic basis, or whenever events or changes in circumstances indicate that their carrying value may not be recoverable, the Company assesses its long-lived assets for impairment. When impairment has occurred, such long-lived assets are written down to fair value. Valuation of Marketable Securities The Company determines fair value for marketable securities with Level 1 inputs through quoted market prices. The Company determines fair value for marketable securities with Level 2 inputs through broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. Our Level 2 marketable securities have been initially valued at the transaction price and subsequently valued, at the end of each month, typically utilizing third party pricing services or other market observable data. The pricing services utilize industry standard valuation models, including both income and market-based approaches and observable market inputs to determine value. These observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, and other industry and economic events. We validated the prices provided by our broker by reviewing their pricing methods, obtaining market values from other pricing sources, analyzing pricing data in certain instances and confirming that the relevant markets are active. After completing our validation procedures, we did not adjust or override any fair value measurements provided by our broker as of December 31, 2025 or 2024. Other The carrying amounts of cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to their short–term nature. At December 31, 2025 and 2024, there were no material differences between the carrying amounts and fair values of NHC’s financial instruments. 69 The following table summarizes fair value measurements by level at December 31, 2025 and December 31, 2024 for assets and liabilities measured at fair value on a recurring basis (in thousands) : Fair Value Measurements Using December 31, 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 $ 92,829 $ 92,829 $ – $ – Restricted cash and cash equivalents 19,358 19,358 – – Marketable equity securities 180,169 180,169 – – Corporate debt securities 58,898 45,948 12,950 – Asset–backed securities 16,236 − 16,236 – U.S. Treasury securities 42,836 42,836 – – State and municipal securities 5,323 877 4,446 – Total financial assets $ 415,649 $ 382,017 $ 33,632 – 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 10 – Property and Equipment Property and equipment, at cost, consists of the following (in thousands) : December 31, 2025 2024 Land $ 98,389 $ 99,815 Leasehold improvements 138,640 133,049 Buildings and improvements 849,927 835,851 Furniture and equipment 207,149 200,872 Construction in progress 14,786 12,149 Property and equipment, at cost 1,308,891 1,281,736 Less: Accumulated depreciation ( 635,094 ) ( 597,447 ) Net property and equipment $ 673,797 $ 684,289 70 Note 11 – Goodwill and Other Intangible Assets As of December 31, 2025, we evaluated potential triggering events that might be indicators that our goodwill and indefinite lived intangibles were impaired. The Company performs its goodwill impairment analysis for each reporting unit that constitutes a component for which ( 1 ) discrete financial information is available and ( 2 ) segment management regularly reviews the operating results of that component, in accordance with the provisions of ASC Topic 350, Intangibles - Goodwill and Other . No goodwill or intangible asset impairments were recorded during the years ended December 31, 2025, 2024, and 2023. The following table represents activity in goodwill by segment as of and for the year ended December 31, 2025 ( in thousands ): Year Ended December 31, 2025 Inpatient Services Homecare and Hospice All Other Total January 1, 2024 3,741 164,554 – 168,295 Additions 2,183 – – 2,183 December 31, 2024 5,924 164,554 – 170,478 Additions – – – – December 31, 2025 $ 5,924 $ 164,554 $ – $ 170,478 Indefinite-lived intangible assets consist of the following (in thousands) : December 31, 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 – Income Taxes Income before income taxes was as follows (in thousands) : Year Ended December 31, 2025 2024 2023 United States $ 162,432 $ 136,408 $ 88,738 Income before income taxes $ 162,432 $ 136,408 $ 88,738 The provision for income taxes is comprised of the following components (in thousands) : Year Ended December 31, 2025 2024 2023 Current tax provision Federal $ 25,589 $ 12,900 $ 14,520 State 7,049 3,490 3,137 Foreign – – – Total current tax provision 32,638 16,390 17,657 Deferred tax provision Federal 5,638 13,841 4,142 State 1,550 4,091 1,651 Foreign – – – Total deferred tax provision 7,188 17,932 5,793 Income tax provision $ 39,826 $ 34,322 $ 23,450 71 The deferred tax assets and liabilities, consisting of temporary differences tax effected at the respective income tax rates, are as follows (in thousands) : December 31, 2025 2024 Deferred tax assets: Accrued risk reserves $ 2,361 $ 2,012 Accrued expenses 9,547 7,695 Stock based compensation 1,350 1,181 Deferred revenue 2,941 3,154 Operating lease liabilities 11,963 19,896 Other 1,105 847 Total gross deferred tax assets 29,267 34,785 Less: valuation allowance ( 212 ) ( 517 ) Deferred tax assets less valuation allowance $ 29,055 $ 34,268 Deferred tax liabilities: Unrealized gains on marketable securities $ ( 35,415 ) $ ( 28,581 ) Deferred gain on sale of assets, net ( 2,048 ) ( 2,055 ) Book basis in excess of tax basis of intangible assets ( 6,283 ) ( 5,655 ) Book basis in excess of tax basis of securities ( 2,787 ) ( 4,042 ) Book basis in excess of tax basis of fixed assets ( 10,460 ) ( 6,579 ) Long–term investments ( 2,605 ) ( 2,652 ) Operating lease assets ( 12,144 ) ( 20,254 ) Total deferred tax liabilities $ ( 71,742 ) $ ( 69,818 ) Net deferred tax liability $ ( 42,687 ) $ ( 35,550 ) A reconciliation of income tax expense and the amount computed by applying the statutory federal income tax rate to income before income taxes after the adoption of ASU 2023 - 09 is as follows (dollars in thousands) : Year Ended December 31, 2025 Tax provision at federal statutory rate $ 34,111 21.0 % State and Local Income Taxes, net of federal benefit (1) 7,834 4.8 Changes in Valuation Allowances ( 305 ) ( 0.2 ) Nontaxable and Nondeductible Items ( 237 ) ( 0.2 ) Changes in Unrecognized tax benefits ( 389 ) ( 0.2 ) Other Adjustments ( 1,188 ) ( 0.7 ) Effective tax rate $ 39,826 24.5 % ( 1 ) The states and local jurisdictions that contribute to the majority (greater than 50% ) of the tax effect in this category include Tennessee. A reconciliation of income tax expense and the amount computed by applying the statutory federal income tax rate to income before income taxes for years prior to the adoption of ASU 2023 - 09 is as follows (in thousands) : Year Ended December 31, 2024 2023 Tax provision at federal statutory rate $ 28,646 $ 18,635 Increase in income taxes resulting from: State, net of federal benefit 6,349 4,600 Unrecognized tax benefits 690 1,227 Expiration of statute of limitations ( 932 ) ( 1,491 ) Tax (expense) benefit of noncontrolling interest ( 34 ) 317 Other, net ( 397 ) 162 Total increases 5,676 4,815 Effective income tax expense $ 34,322 $ 23,450 Our deferred tax assets have been evaluated for realization based on historical taxable income, tax planning strategies, the expected timing of reversals of existing temporary differences and future taxable income anticipated. Our deferred tax assets, with the exception of certain deferred tax assets associated with unrealized losses on marketable securities, are more likely than not to be realized in full due to the existence of sufficient taxable income of the appropriate character under the tax law. As such, the only valuation allowance relates to unrealized losses on marketable securities. Uncertain tax positions may arise where tax laws may allow for alternative interpretations or where the timing of recognition of income is subject to judgment. Under ASC Topic 740, tax positions are evaluated for recognition using a more–likely–than–not threshold, and those tax positions requiring recognition are measured at the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. In accordance with current guidance, the Company has established a liability for unrecognized tax benefits, which are differences between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured. Generally, a liability is created for an unrecognized tax benefit because it represents a company’s potential future obligation to a taxing authority for a tax position that was not recognized per above. We believe that our liabilities reflect the anticipated outcome of known uncertain tax positions in conformity with ASC Topic 740 Income Taxes . Our liabilities for unrecognized tax benefits are presented in the consolidated balance sheets within other noncurrent liabilities. 72 A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands) : Deferred Tax Asset Liability For Unrecognized Tax Benefits Liability For Interest and Penalties Liability Total Balance, January 1, 2023 $ 4,754 $ 8,505 $ 2,678 $ 11,183 Additions based on tax positions related to the current year 1,454 1,454 – 1,454 Additions (reductions) for tax positions of prior years ( 198 ) 324 1,583 1,907 Reductions for statute of limitation expirations ( 361 ) ( 1,030 ) ( 823 ) ( 1,853 ) Balance, December 31, 2023 5,649 9,253 3,438 12,691 Additions based on tax positions related to the current year 835 835 – 835 Additions (reductions) for tax positions of prior years ( 1,380 ) ( 1,097 ) 859 ( 238 ) Reductions for statute of limitation expirations ( 232 ) ( 592 ) ( 572 ) ( 1,164 ) Balance, December 31, 2024 4,872 8,399 3,725 12,124 Additions based on tax positions related to the current year 754 754 – 754 Additions (reductions) for tax positions of prior years ( 531 ) ( 409 ) ( 934 ) 1,576 Reductions for statute of limitation expirations ( 233 ) ( 602 ) ( 568 ) ( 1,403 ) Balance, December 31, 2025 $ 4,862 $ 8,142 $ 2,223 $ 13,051 Unrecognized tax benefits of $ 4,040,000 , net of federal benefit at December 31, 2025, attributable to permanent differences, would favorably impact our effective tax rate if recognized. We do not expect significant increases or decreases in unrecognized tax benefits for the 2026 year, except for the effect of decreases related to the lapse of statute of limitations estimated at $ 964,000 . Interest and penalties expense related to U.S. federal and state income tax returns are included within income tax expense. The Company is no longer subject to U.S. federal and state examinations by tax authorities for years before 2022 (with few state exceptions). The amount of cash income taxes paid by the Company were as follows (in thousands) : Year Ended December 31, 2025 Federal $ 20,688 State Tennessee 1,785 Other states 2,246 Total income taxes paid, net $ 24,719 The amount of cash income taxes paid by the Company during the years ended December 31, 2024 and 2023 was $ 17,525,000 and $ 14,571,000 , respectively. Note 13 – Stock Repurchases During 2025, the Company purchased 127,338 shares of its common stock for a total cost of $ 14,730,000 . During 2024, the Company purchased 133,151 shares of its common stock for a total cost of $ 13,502,000 . During 2023, the Company purchased 44,349 shares of its common stock for a total cost of $ 2,482,000 . The shares were funded from cash on hand and were cancelled and returned to the status of authorized but unissued. Note 14 – Stock – Based Compensation NHC recognizes stock–based compensation for all stock options and restricted stock granted over the requisite service period using the fair value for these grants as estimated at the date of grant either using the Black–Scholes pricing model for stock options or the quoted market price for restricted stock. The Compensation Committee of the Board of Directors ("the Committee") has the authority to select the participants to be granted options; to designate whether the option granted is an incentive stock option ("ISO"), a non–qualified option, or a stock appreciation right; to establish the number of shares of common stock that may be issued upon exercise of the option; to establish the vesting provision for any award; and to establish the term any award may be outstanding. The exercise price of any ISO’s granted will not be less than 100% of the fair market value of the shares of common stock on the date granted and the term of an ISO may not be any more than ten years. The exercise price of any non–qualified options granted will not be less than 100% of the fair market value of the shares of common stock on the date granted unless so determined by the Committee. 73 In May 2020, our stockholders approved the 2020 Omnibus Equity Incentive Plan (the “2020 Equity Incentive Plan”) pursuant to which 2,500,000 shares of our common stock were available to grant for restricted stock, stock appreciation rights, stock options, and an employee stock purchase plan. The employee stock purchase plan allows employees to purchase our shares of stock through payroll deductions. At December 31, 2025, 1,272,632 shares were available for future grants under the 2020 Equity Incentive Plan. Compensation expense is recognized only for the awards that ultimately vest. The Company accounts for forfeitures when they occur. Stock–based compensation totaled $ 4,399,000 , $ 4,160,000 , and $ 2,782,000 , for the years ended December 31, 2025, 2024, and 2023, respectively. Stock–based compensation is included in salaries, wages and benefits in the consolidated statements of operations. The total intrinsic value of shares exercised (and tax deductions taken) was $ 9,464,000 , $ 9,143,000 , and $ 2,769,000 for the years ended December 31, 2025, 2024 and 2023, respectively. At December 31, 2025, the Company had $ 5,019,000 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 Company is required to estimate the fair value of stock–based awards on the date of grant. The fair value of each option award is estimated using the Black–Scholes option valuation model with the weighted average assumptions indicated in the following table. Each grant is valued as a single award with an expected term based upon expected employment and termination behavior. Compensation cost is recognized over the requisite service period in a manner consistent with the option vesting provisions. The straight–line attribution method requires that compensation expense is recognized at least equal to the portion of the grant–date fair value that is vested at that date. The expected volatility is derived using weekly historical data for periods immediately preceding the date of grant. The risk–free interest rate is the approximate yield on the United States Treasury Strips having a life equal to the expected option life on the date of grant. The expected life is an estimate of the number of years an option will be held before it is exercised. The following table summarizes the assumptions used to value the options granted in the periods shown. Year Ended December 31, 2025 2024 2023 Risk–free interest rate 4.1 % 4.4 % 4.5 % Expected volatility 27.0 % 24.1 % 29.3 % Expected life, in years 2.9 2.9 2.9 Expected dividend yield 2.8 % 2.6 % 4.4 % The following table summarizes option activity: Number of Shares Weighted Average Exercise Price Aggregate Intrinsic Value Options outstanding at January 1, 2023 445,144 $ 66.62 − Options granted 299,278 54.44 − Options exercised ( 103,481 ) 64.72 − Options cancelled ( 52,407 ) 60.58 − Options outstanding at December 31, 2023 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 306,148 91.42 − Options exercised ( 202,281 ) 70.17 − Options cancelled ( 87,134 ) 85.94 − Options outstanding at December 31, 2025 647,975 $ 82.53 $ 35,350,779 Options exercisable at December 31, 2025 208,964 $ 72.85 $ 13,424,673 74 Options Outstanding December 31, 2025 Exercise Prices Weighted Average Exercise Price Weighted Average Remaining Contractual Life in Years 199,607 $ 53.94 – $ 71.64 $ 59.88 1.8 448,368 $ 90.62 – $ 106.48 92.62 3.8 647,975 $ 82.53 3.2 Note 15 – Long-Term Debt Long–term debt consists of the following ( dollars in thousands ): Interest rate at December 31, 2025 Maturity December 31, 2025 December 31, 2024 Credit facility, interest payable monthly Variable, 5.3% 2029 $ 40,000 $ 137,000 Less current portion ( 7,500 ) ( 7,500 ) Long-term debt, less current portion $ 32,500 $ 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 December 31, 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 December 31, 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 December 31, 2025 are as follows (in thousands) : Long–Term Debt 2026 $ 7,500 2027 7,500 2028 7,500 2029 17,500 2030 – Total $ 40,000 75 Note 16 – Contingencies, Commitments and Other Matters National Health Investors, Inc. Lease As discussed in Note 6 - 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 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 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 $ 121,595,000 and $ 103,616,000 at December 31, 2025 and 2024, respectively. The liability is included in accrued risk reserves in the 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 long–term 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. Insurance coverage for all years includes primary policies and excess policies. The primary coverage is in the amount of a per incident claim and a per location claim with an annual primary policy aggregate limit that is adjusted on an annual basis. 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. 76 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. 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. Governmental Regulations Laws and regulations governing the 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. Debt Guarantees At December 31, 2025, no agreement to guarantee the debt of other parties exists. Note 17 – Relationship with National Health Corporation National Health Corporation ("National"), which is wholly owned by the National Health Corporation Leveraged Employee Stock Ownership Plan ("ESOP"), was formed in 1986 and is our administrative services affiliate and contractor. As discussed below, all of the personnel conducting our business, including our executive management team, are employees of National and may have ownership interests in National only through their participation as employees in the ESOP. Management Contracts We currently manage five skilled nursing facilities for National under a management contract. The management contract has been extended until January 1, 2028. See Note 3 for additional information regarding management services fees recognized from National. Financing Activities In conjunction with our management contract, we have entered into a line of credit arrangement whereby we may have amounts due from National from time to time. The maximum loan commitment under the line of credit is $ 2,000,000 . At December 31, 2025 and 2024, National did not have an outstanding balance on the line of credit. The maximum line of credit commitment amount of $ 2,000,000 is also the amount of a deferred gain that has been outstanding since NHC sold certain assets to National in 1988. The amount of the deferred gain is expected to remain deferred until the management contract with National expires, currently scheduled in January 2028. The deferred gain is included in deferred revenue in the consolidated balance sheets. Payroll and Related Services The personnel conducting our business, including our executive management team, are employees of National and may have ownership interests in National only through their participation in the ESOP. National provides payroll services to NHC, provides employee fringe benefits, and maintains certain liability insurance. We pay to National all the costs of personnel employed for our benefit, as well as an administrative fee equal to 1 % of payroll costs. The administrative fee paid to National for the years ended December 31, 2025, 2024, and 2023 was $ 6,218,000 , $ 5,878,000 , and $ 5,431,000 , respectively. At December 31, 2025 and 2024, the Company has recorded $ 911,000 and $ 2,933,000 , respectively, in accounts payable in the consolidated balance sheets as a result of the timing differences between interim payments for payroll and employee benefits services costs. National ’ s Ownership of Our Stock At December 31, 2025 and 2024, National owns 1,030,887 shares of our outstanding common stock. This accounts for 6.6 % and 6.7 %, respectively, of the total outstanding shares of common stock. 77 Consolidation Considerations Because of the contractual and management relationships between NHC and National as described in this note above, we have considered whether National should be consolidated by NHC under the guidance provided in ASC Topic 810, Consolidation . We do not consolidate National because ( 1 ) NHC does not have any obligation or rights (current or future) to absorb losses or to receive benefits from National. The ESOP participants bear the current and future financial gain or burden of National, ( 2 ) National’s equity at risk is sufficient to finance its activities without past or future subordinated support from NHC or other parties, and ( 3 ) the equity holders of National (that is collectively the ESOP, its trustees, and the ESOP participants) possess the characteristics of a controlling financial interest, including voting rights that are proportional to their economic interests. Supporting the assertions above is the following: ( 1 ) substantive independent trustees are appointed for the benefit of the ESOP participants when decisions must be made that may create the appearance of a conflict of interest between NHC and the ESOP, and ( 2 ) National was designed, formed and is operated for the purpose of creating variability and passing that variability along to the ESOP participants—that is, to provide retirement benefits and value to the employees of NHC and NHC’s affiliates. The contractual and management relationships between NHC and National are with the skilled nursing facilities that are substantially less than 50% of the fair value of the total assets of National. NHC does not have a variable interest in National as a whole. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.