NATIONAL HEALTHCARE CORP Fair Value Disclosure
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.
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 | 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 | 2,931 | – | |||||||||||||
| Total financial assets | $ | 379,980 | $ | 348,824 | $ | 31,156 | $ | – | ||||||||
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.