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JPMorgan Chase (NYSE:JPM) kicked off earnings season for the banking sector on Tuesday with earnings that, thanks to strong expense management, handily beat the market's expectations despite a 3% year-over-year drop in revenue. Here's what you need to know about JPMorgan Chase's second quarter, and why investors should be excited about the bank's performance.

JPMorgan Chase's revenue numbers don't look great...
When reading through the revenue numbers, it would appear that the quarter wasn't a great one. Total revenue fell by 3%, and only one of the bank's four main business segments experienced higher year-over-year revenue.

The Corporate & Investment Bank's (CIB) revenue fell by 6%, mainly due to lower lending revenue and a weakness in fixed income. Consumer & Community Banking (CCB) revenue dropped 4% thanks to spread compression and lower mortgage revenue. And the Commercial Banking (CB) division's revenue was virtually unchanged from last year.

In fact, the Asset Management (AM) business was the only one to experience a year-over-year increase in revenue, fueled by deposit and loan growth.

There were a few bright spots that are worth mentioning. Despite an overall decline in investment banking, JPMorgan's equity markets revenue increased by 27%, continuing the trend we saw across the industry during the first quarter. Client deposits also grew impressively, with consumer deposits up by 9% and asset management balances up 3%. Finally, the bank's corporate division posted a $440 million profit due to tax benefits and a lack of financial crisis-related legal expenses.

...but the bank spent a lot less money
The fact that JPMorgan Chase beat earnings expectations despite the lackluster revenue numbers shows how well Jamie Dimon's promise to cut expenses is working out. Simply put, if a bank's expenses drop by more than its revenue, it'll still make more money -- and that's exactly what happened here.

Most notably, the large CIB division trimmed its expenses by 15% on lower compensation costs and legal expenses and overall simplification of the business. Even though the CIB division's revenue fell by 6%, it was more than offset by cost-cutting, and net income rose by 10% from the same quarter last year.

The same can be said for the CCB division, which is JPMorgan's largest in terms of revenue. The division's decrease in expenses turned a 4% revenue drop into a 1% net income gain.

Overall, JPMorgan Chase's overall noninterest expense fell by 6%, and was 3.5% less than analysts were expecting. The bank essentially matched revenue expectations ($24.53 billion vs $24.51 billion), but its earnings of $1.54 per share easily surpassed analysts' expectations of $1.44.

This translated to a return on tangible equity of 14%, just shy of the bank's 15% target, and its adjusted overhead ratio (efficiency) was 58% for the quarter, down from 61% at the end of 2014. If the bank can continue its cost-cutting efforts and improve its efficiency to its 55% target, there is a good chance it will reach its long-term profitability goals.

Credit quality keeps getting better
Another thing investors should pay attention to is the continuous improvement in JPMorgan's credit quality. With a massive lending business, including the largest credit card business in the U.S., a continued reduction in charge-offs and delinquencies could put billions into JPMorgan's pockets.

The net charge-off rate in the credit card business dropped to 2.61% from 2.88% over the past year, and is forecast to fall below 2.5% in the second half of 2015. While this may not sound like much, bear in mind that JPMorgan averages $124.5 billion in outstanding credit card loans, so this reduction means tens of millions of dollars to the bank's bottom line.

Other areas of the lending business are experiencing similar trends. For example, mortgage charge-offs are down 38% from last year, which has resulted in higher profitability and lower loss provisions.

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Source: JPMorgan Q2 Earnings Presentation

Additionally, all areas of the bank's lending business are growing rapidly. Mortgage originations are up 74% from last year, auto loan originations are up 10%, and the number of active credit card users has grown by about 800,000.

The combination of a rapidly growing lending business and falling loan delinquencies puts JPMorgan in a strong position, especially if interest rates rise in the coming quarters as expected.

One to watch as the economy grows
If the economy begins to expand, JPMorgan could see its profits increase dramatically thanks to its long-running emphasis on cost-control, thriving lending business, and increasing pool of low-cost deposits. Although the revenue numbers might not look too impressive right now, it appears that JPMorgan Chase is doing a great job of setting itself up for sustainable future success.

Matthew Frankel has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.