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Second-quarter earnings fell at JPMorgan Chase (NYSE:JPM) after low interest rates and a steep drop in mortgage banking income overpowered a $931 million drop in expenses.

The nation's biggest bank by assets said on Tuesday that it earned $8.38 billion before taxes in the three months ended June 30 compared to $8.56 billion in the year-ago period. It amounted to a 2.1% decline.

On a per-share basis, JPMorgan's after-tax diluted earnings per share increased by 5.5% to $1.54, from $1.46 in the second quarter of 2014. The boost stemmed from a lower tax bill and a drop in its outstanding share count.

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Revenue at the New York bank took a significant hit, falling by $866 million, or 3.5%, compared to the same period last year.

Low interest rates were the primary culprit. Despite the fact that JPMorgan's interest-earning assets rose by $74 billion, it nevertheless earned $114 million less in net interest income thanks to a 10-basis-point decline in the amount of money it generates from investing in loans and fixed-income securities.

Had the bank's net interest margin remained stable, the bank would have earned $524 million more net interest income than it did in last year's second quarter.

Fee-based revenue was also down at JPMorgan. The hardest hit line item was mortgage banking income, which fell from $1.29 billion last year to only $783 million this year, equating to a 39.3% decline.

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Higher loan loss provisions also ate away at the bank's pre-tax earnings. From the beginning of April through the end of June, JPMorgan set aside $935 million in anticipation of future loan losses. In the same stretch last year, it set aside only $692 million.

The highlight of JPMorgan's second-quarter performance was the nearly $1 billion drop in operating expenses. The principal metric analysts and commentators use to assess this is a bank's efficiency ratio, which communicates how much it costs a bank to generate $1 in earnings. In this case, JPMorgan's efficiency ratio fell to 60.9%, down from 62.5% last year. This gets it ever closer to the 60% threshold that distinguishes truly exceptional banks.

All things considered, despite the continued drag of low interest rates, JPMorgan still cleared a 1.01% annualized return on assets for the quarter and a 11% return on common equity. Both figures are very good at this stage in the business cycle. The latter figure, in particular, exceeds the 10% benchmark that generally dictates whether or not a bank's shares trade for a premium to book value.

The market has thus far taken a favorable view of JPMorgan's results, pushing its shares higher in early morning trading.

John Maxfield 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.