American Express 2025 Annual Report Analysis: Margins Under Pressure

1. Business Overview

American Express uses a closed-loop payment system that brings together card issuing, merchant acquiring, and network services.

This setup lets the company manage both sides of each transaction and earn more from spending than its open-loop competitors.

Its strategy is deliberately premium-focused, targeting high-spending, creditworthy consumers and businesses, which supports higher average transaction values, strong merchant economics, and resilient fee income.

American Express serves a mix of consumer, commercial, international, and merchant clients. The variety helps the company avoid relying too heavily on any one region or customer group.

The company’s model relies on strong data and close customer relationships. This helps with risk management, fraud prevention, personalized offers, and rewards funded by partners.

These features build customer loyalty and give American Express a lasting advantage, though they also make operations more complex and increase regulatory risks.

2. Reportable Segments

Segment	Description	Primary Customer Focus	Geographic Scope
U.S. Consumer Services (USCS)	Issues consumer and small business cards and provides lending, banking, and lifestyle-related products and services	U.S. consumers and small businesses	United States
Commercial Services (CS)	Provides payment, lending, and expense management solutions to corporations and small-to-mid sized businesses	Corporations, SMEs, commercial clients	Primarily United States
International Card Services (ICS)	Issues consumer and commercial cards and offers related services outside the U.S.	International consumers and businesses	International markets
Global Merchant and Network Services (GMNS)	Manages merchant acquiring, card acceptance, network services, and transaction processing	Merchants, network partners, acquirers	Global

American Express organizes its business as a balanced payments ecosystem, not just a single-product financial company.

U.S. Consumer Services anchors profitability through a large base of high-spending, fee-paying card members, while Commercial Services adds volume stability and stickiness via corporate and SME expense management relationships.

International Card Services takes the premium model worldwide, providing long-term growth opportunities but also facing greater regulatory and economic risks.

Network Services acts as the connective tissue of the franchise, monetizing merchant relationships and transaction data while strengthening card acceptance and network scale.

These segments support each other, boosting pricing power, data benefits, and customer loyalty.

However, they also make operations more complex and increase regulatory supervision in different regions.

3. Revenue Model & Key Drivers

American Express makes most of its money from card member spending, not just from lending.

The company’s revenue model focuses on promoting spending and cultivating strong customer relationships.

American Express earns more from merchants as cardholders spend more.

By focusing on high-spending, premium customers, the company benefits from bigger transactions and better deals with merchants.

Interest income and card fees provide secondary but stabilizing income streams, balancing cyclicality in consumer spending while supporting investments in rewards and services.

The Membership Model relies on rewards funded by partners, co-brand relationships, and annual fees.

This approach stimulates greater engagement and spending, which in turn attracts more merchants and partners.

However, this model is expensive to maintain. It depends on steady consumer spending, strong partner relationships, and beneficial regulations on merchant pricing to keep profits up.

4. Competition

American Express faces strong competition in the fast-changing payments industry.

It competes with traditional card networks and issuers, as well as fintech companies, digital wallets, new payment methods, and AI-powered commerce models.

Its business positioning is differentiated by a premium, closed-loop network, strong brand, and superior customer service, which allows it to attract high-spending, creditworthy customers and valuable merchant partners.

However, the fight for premium customers and co-brand partnerships is tough. This leads to higher costs for rewards, marketing, and partnerships.

At the same time, new payment platforms and technologies could cut out American Express as the middleman.

This might damage its direct customer relationships and reduce its pricing flexibility.

Overall, American Express still has a strong competitive edge, but it needs significant investment and ongoing innovation to maintain its market position and profitability.

5. Regulations

American Express operates in a highly regulated, complex worldwide environment, as it is both a bank holding company and a major payments provider.

Regulations have a major impact on American Express’s capital structure, liquidity oversight, product design, pricing options, and capital return to shareholders.

Stricter standards, stress tests, and planning rules strengthen the balance sheet, but they also increase compliance costs and limit strategic options, especially for growth, acquisitions, and capital distributions.

Payment regulations such as interchange fee caps, surcharging rules, data localization, and consumer protection laws also put pressure on profit margins and introduce legal uncertainty, particularly in international markets.

While strong compliance systems make it difficult for smaller competitors to enter the market, regulations remain a constant risk.

They can reduce profits, change business operations, and make things more complicated over time.

6. Risk Factors & Key Risk Summary

Risk Category	Key Risk	Potential Impact
Competitive Risk	Intense competition from card networks, banks, fintechs, and alternative payment methods	Margin pressure, higher rewards and marketing costs, loss of premium customers or partners
Regulatory & Compliance Risk	Extensive global regulation of banking, payments, consumer protection, data, and pricing	Higher compliance costs, limits on pricing, capital returns, or business activities
Macroeconomic & Credit Risk	Economic downturns impacting consumer spending and credit performance	Lower billed business, higher loan losses, reduced profitability
Partner Concentration Risk	Dependence on major cobrand partners (e.g., airlines)	Revenue volatility or disruption if partnerships weaken or terminate
Technology & Cybersecurity Risk	Cyberattacks, system failures, data breaches, or AI governance issues	Reputational damage, regulatory penalties, customer attrition
Merchant Acceptance Risk	Merchant surcharging, steering, or regulatory limits on fees	Reduced card usage, weaker value proposition for Card Members
Operational & Execution Risk	Complexity of global operations, integrations, and regulatory compliance	Increased costs, operational disruptions, slower strategic execution

American Express has a strong business model, but it also faces some structural risks.

The company’s premium brand and integrated network give it an edge over competitors, but they also make it more sensitive to regulatory changes, increased competition, and shifts in partner relationships.

Because American Express depends on both consumer and business spending, its performance tends to rise and fall with the economy.

Its worldwide reach also brings additional operational and compliance challenges.

Many of the company’s risks, such as regulatory, technology investment, and cybersecurity risks, are ongoing and must be managed continuously.

These areas need sustained investment and close management oversight.

Although its size and strong brand help protect American Express compared to smaller rivals, these risks can still reduce profits and limit strategic options, especially during tough economic times or when regulations become stricter.

7. Legal Proceedings

The court case involving American Express is a result of the risks that come with operating a global, regulated payments and banking business, not because of any particular misconduct by the company.

Current and potential lawsuits, often related to merchant contracts, pricing, regulatory rules, or compliance, may result in financial penalties, required changes to business practices, or reputational harm, even if the outcomes are not yet clear.

These types of legal cases are common for large, complex companies, but they can cause unpredictable earnings and distract from strategy, especially if negative decisions reduce contract protections or pricing options.

To summarize, legal risk does not currently threaten the company’s ability to operate, but it remains a concern that can increase regulatory pressure and gradually weaken its financial condition.

8. Financial Performance

Metric	FY 2025	FY 2024	YoY Trend (Words)
Total Revenues (net of interest expense)	72,229	65,949	Strong growth
Net Income	10,833	10,129	Improved
Diluted EPS (USD)	15.38	14.01	Double-digit growth
Total Non-Interest Revenues	54,865	50,406	Increased
└ Discount Revenue	37,401	35,192	Expanded
└ Net Card Fees	9,993	8,449	Strong increase
Net Interest Income	17,364	15,543	Increased
Provisions for Credit Losses	5,256	5,185	Slightly higher
Total Expenses	53,178	47,869	Meaningfully higher
Operating Cash Flow	18,428	14,050	Strong improvement
Total Loans & Card Member Receivables	224,791	208,317	Expanded
Customer Deposits	152,488	139,413	Increased
Cash & Cash Equivalents	47,792	40,640	Higher
Average Diluted Shares (millions)	696	713	Reduced

(USD millions, except per-share)

The financial results show strong, steady growth in American Express’s core earnings in FY 2025.

Revenue grew thanks to higher cardmember spending, higher card fees, and improved net interest income. This led to double-digit growth in diluted EPS, even as costs went up.

This shows how the premium, spend-focused model can deliver results even as competition and inflation rise.

However, expenses grew faster than revenue because the company kept investing in rewards, marketing, service, and technology to protect its brand and keep premium customers.

This puts pressure on short-term margins but helps build stronger customer relationships and a more solid network over time.

Based modestly but remained well-controlled relative to loan growth, strengthening confidence in underwriting discipline and portfolio quality.

Balance sheet: The balance sheet shows the company is growing and financially strong. Loans and deposits increased, backed by strong cash flow.

Liquidity stayed high, and fewer shares outstanding boosted returns per share.

The results suggest American Express is a high-quality company that generates strong cash flow, manages risk well, and uses capital efficiently.

However, investors should keep an eye on the company’s higher ongoing costs.

9. Margin & Cost Structure

Metric (USD Millions)	FY 2025	FY 2024	YoY Trend (Words)
Total Revenues (net of interest expense)	72,229	65,949	Increased
Total Expenses	53,178	47,869	Increased faster than revenue
Pretax Income	13,795	12,895	Improved
Pretax Margin	19.1%	19.6%	Slightly lower
Net Income	10,833	10,129	Increased
Net Margin	15.0%	15.4%	Slightly lower
Cost-to-Income Ratio	73.6%	72.6%	Higher
Card Member Rewards	18,409	16,599	Meaningfully higher
Marketing & Business Development	12,709	11,926	Higher
Salaries & Employee Benefits	9,016	8,198	Increased

The table shows that American Express remained profitable in FY 2025, even as margins came under pressure.

Revenue continued to grow, but costs rose even faster, slightly reducing both pretax and net margins.

This indicates the company’s deliberate strategy to reinvest aggressively in rewards, marketing, and servicing to protect its premium customer base and sustain long-term spending growth.

The main reasons for higher expenses were Card Member rewards and the cost of getting new customers, both tied to more business and updates to premium products.

Employee costs also increased, mainly due to greater technology spending and higher service demands.

The higher cost-to-income ratio makes the company less efficient in the short term, but it shows that growth is the main focus, not just maximizing margins.

Overall, margins remain strong and stable, thanks to the company’s pricing power and scale.

For investors, the main point is that margins are stable but not growing.

Future gains will depend on whether management can control costs as investment levels out, without hurting the core Membership Model.

10. Liquidity & Capital Resources

Metric	FY 2025	FY 2024	YoY Trend (Words)
Cash & Cash Equivalents	47,792	40,640	Increased
Net Cash from Operating Activities	18,428	14,050	Strong improvement
Customer Deposits	152,488	139,413	Increased
Total Loans & Card Member Receivables	224,791	208,317	Expanded
Loan-to-Deposit Ratio	~147%	~149%	Slight improvement
Long-Term Debt	56,387	49,715	Higher
Capital Returned to Shareholders (buybacks + dividends)	~7,600	~8,000	Slightly lower
CET1 Capital Ratio	~10–11% (within target range)	~10–11%	Stable
Regulatory Capital Buffers	Above minimum requirements	Above minimum requirements	Maintained

(USD millions unless stated)

American Express starts FY 2026 with a strong and carefully managed liquidity position, supported by higher cash balances and solid operating cash flow.

More customer deposits have created a stable and diverse funding base, helping the balance sheet grow and slightly improving the loan-to-deposit ratio.

This demonstrates careful fund management amid higher interest rates and greater financial volatility.

The company maintained its CET1 capital ratio within its target range and well above regulatory minimums, strengthening the balance sheet in stressful situations.

Long-term debt increased to support growth and funding flexibility, while leverage remains within regulatory limits.

American Express continued to return significant funds to shareholders and maintained strong capital buffers, signaling confidence in steady earnings.

Overall, the company’s liquidity and capital position indicate low balance-sheet risk, with ample liquidity, stable funding, and strong regulatory capital coverage.

For investors, this means less downside risk and more reliable capital returns, although strict regulations still limit aggressive leverage or capital strategies.

11. Cash Flow Quality

Metric (USD millions)	FY 2025	FY 2024	YoY Trend (Words)
Net Income	10,833	10,129	Increased
Net Cash from Operating Activities	18,428	14,050	Strong improvement
Operating Cash Flow / Net Income	~1.7x	~1.4x	Improved
Provisions for Credit Losses (non-cash addback)	5,256	5,185	Stable
Net Cash Used in Investing Activities	22,891	24,402	Lower outflow
Capital Expenditures & Premises Investment	2,425	1,911	Higher
Net Cash from Financing Activities	11,210	4,436	Significantly higher
Share Repurchases & Dividends	8,085	8,019	Stable
Net Change in Cash & Equivalents	7,152	(5,956)	Meaningful improvement
Ending Cash & Equivalents	47,792	40,640	Higher

American Express shows strong cash flow, with operating cash flow well above net income in FY 2025.

The operating cash flow to net income ratio is about 1.7 times, showing solid earnings conversion and careful accounting.

This is backed by steady non-cash items, such as credit loss provisions.

This illustrates the strength of the company’s spend-based revenue model and its attentive management of working capital.

Cash outflows slowed compared with last year, even as capital spending increased.

This suggests the company is managing reinvestment carefully while still supporting technology, service, and growth projects.

Financing cash inflows rose sharply, giving the company greater liquidity and enabling it to maintain steady shareholder returns through buybacks and dividends.

Overall, the company’s cash flow is strong, reliable, and well-managed.

Strong operating cash flow easily covers reinvestment and capital returns, while also boosting liquidity.

For investors, this means there is little risk to earnings quality and supports trust in the company’s ability to keep up dividends, buybacks, and a flexible balance sheet.

12. Market Risk Exposure

Risk Type	Exposure Indicator	FY 2025 Position	FY 2024 Position	Risk Direction
Interest Rate Risk	Net Interest Income (USD millions)	17,364	15,543	Increased sensitivity
	Interest-Bearing Deposits (USD millions)	151,443	138,450	Higher
	Long-Term Debt (USD millions)	56,387	49,715	Higher
Credit Spread Risk	Card Member Loans (net, USD millions)	145,923	133,995	Expanded
	Provisions for Credit Losses (USD millions)	5,256	5,185	Slightly higher
Foreign Currency Risk	International Revenues (qualitative disclosure)	Material exposure	Material exposure	Stable
	FX-adjusted revenue reporting	Used as key metric	Used	Ongoing
Liquidity & Funding Risk	Customer Deposits (USD millions)	152,488	139,413	Increased stability
Equity & Investment Risk	Investment Securities & Other Assets (USD millions)	~66,000+	~63,000+	Moderately higher

American Express faces several types of market risk, primarily from changes in interest rates, credit spreads, and foreign currency values.

Net interest income has grown alongside increased interest-bearing deposits and long-term debt, making the company more sensitive to interest rate changes.

However, American Express manages this risk via asset and liability matching and hedging, as explained in its 10-K report.

Credit risk rose slightly as Card Member loans grew, but the company kept credit loss provisions unchanged.

This suggests that any additional risk has been carefully managed and corresponds to growth in the loan portfolio rather than a decline in asset quality.

This shows that American Express is using careful underwriting instead of taking big risks to grow its balance sheet.

Foreign currency risk is a regular part of the business because of international operations.

By using FX-adjusted metrics, management aims to present the company’s core performance free of currency swings.

This helps investors understand results more clearly, even though it does not remove the actual risk.

Overall, market risk exposure has grown in absolute terms with business scale, but not disproportionately relative to earnings, liquidity, or capital buffers.

For investors, this means the company manages risk openly, and any volatility comes from its size and global presence, not from taking on extra risk.

13. Management Commentary

• Management highlights the strength of the premium, spend-focused business model, citing strong card member spending, steady credit performance, and a diverse revenue mix.
• Management remains confident about long-term growth, backed by investments in premium products, rewards, technology, and broader global merchant acceptance.
• While keeping expenses in check is a priority, management is willing to accept some short-term margin pressure for maintaining customer engagement and protect the brand.
• Management continues to take a shareholder-friendly yet cautious approach to capital, returning significant amounts to shareholders while maintaining regulatory capital ratios within target levels.
• Management sees liquidity and funding as key strengths, providing the company with flexibility to navigate economic uncertainty and competition.
• Management recognizes there are economic, geopolitical, and regulatory issues, but views them as manageable risks rather than present threats.
• Overall, management’s comments strike a balance: they are cautious about the environment, confident in their ability to deliver, and focused on creating long-term value rather than short-term profits.

14. Accounting Quality & Red Flags

Area	Observation from 10-K	Assessment	Red Flag Level
Revenue Recognition	Revenue largely transaction- and fee-based; no aggressive acceleration noted	Transparent and recurring revenue streams	Low
Use of Non-GAAP Metrics	FX-adjusted revenues used alongside GAAP results	Supplementary, clearly reconciled	Low
Credit Loss Provisions	Provisions increased broadly in line with loan growth and macro outlook	Conservative and model-driven	Low
Reserve Judgments	Significant management judgment in credit loss modeling	Inherent estimation risk, not abnormal	Moderate
Expense Capitalization	No material capitalization of operating costs observed	Clean expense recognition	Low
Restructuring Charges	Ongoing restructuring programs with recurring charges	Indicates continual cost optimization	Moderate
Tax Accounting	Large deferred tax adjustments and ongoing IRS examination disclosed	Transparent but outcome uncertain	Moderate
Legal & Regulatory Accruals	No material undisclosed contingencies identified	Adequately disclosed	Low
Balance Sheet Complexity	Use of VIEs, securitizations, and tax credit investments	Structural complexity typical for scale	Moderate
Internal Controls	Management and auditor concluded controls are effective	Strong governance signal	Low

Overall, American Express shows strong accounting quality.

The company uses conservative revenue recognition, provides clear disclosures, and maintains effective internal controls.

Most of the company’s earnings are supported by cash, reducing the risk of aggressive accounting or earnings management.

Loan growth, credit provisions, and broader economic assumptions are well aligned, which supports confidence in the company’s reserves.

The main areas to watch are those that rely on management’s judgment, rather than risks related to misconduct.

Credit loss modeling, deferred tax positions, and ongoing restructuring charges involve some subjectivity and can make earnings more volatile over time.

The company’s balance sheet is complex because of securitizations, VIEs, and tax credit investments.

While these are well disclosed and common in the industry, they make analysis more challenging for investors.

In summary, there are no major red flags.

However, as a large, regulated financial institution, the company does have some moderate accounting complexity risk.

For investors, this means there is a low chance of unexpected accounting issues.

It is more important to watch how the company’s estimates and assumptions change as the economy shifts than to worry about accounting integrity.

15. Ownership Structure

Ownership Category	Description	Implication
Public Shareholders	Widely held, publicly traded common stock	No single controlling shareholder
Institutional Investors	Large ownership by asset managers, pension funds, and mutual funds	Professional oversight; focus on long-term returns
Retail Investors	Meaningful but minority participation	Limited influence on governance
Management & Directors	Relatively small equity ownership	Incentive alignment through compensation plans rather than control
Controlling Shareholder	None disclosed	Independent board governance
Dual-Class Structure	Not present	One-share-one-vote structure

American Express is owned by many institutions, which helps maintain strong governance and reduces the risk of any one person or group having too much control.

The absence of a controlling shareholder and the presence of a single-class voting structure strengthen transparency and protect minority shareholder rights.

Institutional owners help keep the company disciplined and accountable, but they also make it more focused on steady earnings, returns on capital, and broader economic risks.

Since management owns only a small share of the company, its interests are aligned with shareholders mainly through performance-based pay rather than through stock ownership. This is common in big financial firms.

To summarize, the company’s ownership is stable and supports shareholders, and the risk from governance issues is low.

16. Conclusion for Investors

American Express presents itself as a high-quality, dependable company that uses a premium, spend-focused business model rather than high-volume lending.

The 2025 results show that American Express can grow revenue, earnings, and cash flow together, supported by strong card member engagement, pricing power, and careful risk management.

The company’s strong liquidity and capital reduce balance-sheet risk and help provide steady returns to shareholders through dividends and buybacks.

Still, there are some trade-offs to keep in mind with this investment.

Costs are rising as management invests more in rewards, marketing, technology, and customer service to protect the brand and retain customers.

This limits short-term margin growth and makes the company more sensitive to slower consumer spending or new regulations.

Credit quality remains strong, but it’s important to watch for changes in credit costs as the economy shifts.

Overall, American Express suits investors who want steady growth, strong cash flow, stable business performance, and careful capital management.

The company’s potential comes from continued spending growth and better efficiency, while the main risks involve cost control, the broader economy, and regulations, not balance-sheet or accounting problems.