AMP Bank's business performance has dodged the financial impact of the governance controversy that has eroded investor support for the AMP Group.The banking arm was the standout performer across the group's businesses in the six months to the end of June, after it reported a 20 per cent leap in operating profit to A$78 million.The stellar earnings performance from the banking arm equated to a 16.7 per cent return on capital and could not be matched by AMP's core wealth arms that were mired in the 'fees for no service' scandal for much of the half. Special provisions worth more than $300 million to compensate customers affected by the scandal demolished the earnings contributions from AMP's core businesses.Group net profit for the half fell 72 per cent to $128 million.AMP Bank's record interim profit was driven by above-system growth in residential lending, which expanded by eight per cent.The bank's mortgage book cracked $20 billion for the first time, despite subdued growth in lending to investment borrowers caused by APRA's tightening of lending standards across the sector.AMP continues to generate most of its new lending through external brokers and the group's national network of aligned advisers.The bank has also been carefully managing its net interest margin.NIM in the first half averaged 172 basis points, which was up five bps on the same period last year, but one basis point lower than the December half.AMP Bank preserved its net margin in the June half mostly by reducing interest rates on deposit products.At the start of June the bank slashed the ongoing bonus rate on its Bett3r account by 75 basis points to 2.25 per cent.In the last year the bank has grown slightly more reliant on securitisation as a source of funding.In June 2017 AMP Bank was funding almost 60 per cent of its loans through customer deposits, but that has since tapered to 56 per cent.In the same period the contribution of securitisation to total funding rose from 18 per cent to 21 per cent.A worrying trend for the bank has been the recent sharp decline in its holdings of household deposits.The recently published June banking statistics by APRA show that AMP Bank held $2.9 billion of household deposits at the end of June.That represents a decline of $900 million or 23 per cent on the household deposit base reported to APRA in June 2017.