The nation's largest mortgage lender is turning to cost-cutting as the economy sputters and the grinding housing slump means waning profits from new mortgages.

Wells Fargo & Co. on Tuesday posted a 30 percent leap in second-quarter profit, boosted by the release of a big chunk of the money set aside to cover defaulted loans and foreclosed mortgages. But the San Francisco bank reported a sharp decline in the number of new mortgages it wrote, reflecting the ongoing weakness in the housing market and a drop in refinancing activity.

Bank executives detailed plans for cutting $11 billion in expenses by the end of next year.

The San Francisco-based bank said net income for the three months ended June 30 rose to $3.73 billion, or 70 cents per share, compared with $2.88 billion, or 55 cents per share, in the year-ago quarter.

Analysts, on average, were expecting profit of 69 cents per share, according to data provided by FactSet.

Net interest income, or the money earned from deposits and loans, fell 7 percent to $10.68 billion from $11.45 billion last year.

Total loans fell 2 percent to $751.92 billion, although the bank did report growth in auto loans, private student lending and credit cards.

But core deposits rose 7 percent to $808.97 billion. That in part reflected a 7 percent jump in consumer checking accounts, which Chief Financial Officer Timothy Sloan attributed during a conference call in part to the ongoing combination with Wachovia, which Wells bought in late 2008 amid the economic meltdown.

Noninterest income, or money earned from fees and investments, slipped 2 percent to $9.71 billion from $9.95 billion last year.

Wells Fargo does not rely as heavily on investment operations as most of the other big U.S. banks, which have leaned on gains in that arena to offset weakness in retail banking operations. But it did report a 7 percent rise in trust and investment fees to $2.94 billion, which helped boost noninterest income.

Mortgage banking revenue, a core profit generator, dropped to $1.6 billion from $2 billion last year, however.

The bank wrote $64 billion in mortgages during the quarter, down from $81 billion a year ago, reflecting the widespread slump in housing sales nationwide and fewer refinancings, which helped buoy the mortgage business in recent quarters.

Paul Miller, an analyst with FBR Capital Markets, said mortgage revenue came in below his expectations, but did not contract as much as some other banks have reported this quarter.

In an interview, Sloan said the decline reflected the winding down of refinancing in the current low-interest environment. He said the bank sees the overall housing market as "more or less stabilized, based upon where the economy is today." The pipeline of new mortgages was up slightly at the end of the quarter, he said.

Overall, improvements in the payment habits of customers with outstanding loans provided the biggest boost to earnings.

The amount of loans it wrote off because of default, known as charge-offs, dropped for the sixth straight quarter to $2.84 billion from $4.49 billion last year. Better results came in both commercial and consumer loans, including home mortgages and credit cards.

The sharp decline in write-offs allowed the bank to release $1 billion from its loan-loss reserves, the money set aside to cover bad loans.

Another positive for Wells came in its credit card business.

Fees from credit cards and debit cards jumped 10 percent, because of increased spending by card users and growth in new customers. New credit card accounts shot up 63 percent from a year ago.

Wells Fargo, which as a much smaller credit card business than its rivals, has traditionally concentrated on selling credit cards to existing deposit customers, rather than mailing offers to a broader swath of consumers. Sloan said a good portion of the increase came from extending that tactic and selling new cards sold to former Wachovia customers. Card accounts more than doubled in Eastern states, where the bank is continued its combination with Wachovia.

The CFO said card growth also reflects efforts by the bank to open new accounts with mortgage holders and brokerage clients who don't necessarily have checking or savings accounts with the bank. "We're trying to grow penetration rates with other customers that have other products, not just deposit products," he said.

During the call, Sloan said the new federal rules capping the fees that banks can charge retailers for processing debit card transactions, which take effect Oct. 1, will cut about $250 million from pre-tax quarterly earnings. "We expect to recapture at least half of this over time, through volume and product changes," Sloan said

Still, with mortgage revenue declining and the economic recovery having lost steam, the bank is moving to cut expenses.

Sloan outlined a plan to simplify operations and eliminate duplication. Targeted areas include streamlining technology and automation, pushing customers to use online and mobile services that reduce staff needs and reorganizing units like its auto lending business and wealth management. It is also shedding non-core businesses like its H.D. Vest Financial Services unit, which it said last month it will sell for an undisclosed price.

Shannon Stemm, a financial services analyst at Edward Jones, said the bank's discussion of its cost-saving measures helped boost Wells' stock in Tuesday's trading. "They seem to be ahead of their peers in recognizing that the only way to combat revenue weakness during a weak economic environment in the near term is by slashing expenses."

Shares added $1.09, or 4 percent, to $27.97 in midday trading.