Its slowed performance was attributed to the impact of the first lockdown as well as market-wide challenges caused by the pandemic.
In total, Paragon Bank’s advances stood at £521.8m for the period, a drop from the previous year’s £684.9m.
Of these, £304.1m were mortgage advances and £217.7m were commercial loans.
The update suggested its buy-to-let business had since recovered with the pipeline for the quarter reaching £966.8m, £152.8m above the same period last year and a record high for the lender.
As many of the applications require completion ahead of the stamp duty holiday deadline, Paragon said it was planning to convert this business faster than usual.
Commercial lending volumes reached £217.7m, driven by development finance where advances where ahead of those seen in the same period the year before.
The group said the full economic effect of Covid-19 remained uncertain and in response it has updated its International Financial Reporting Standard (IFRS) models to prepare for the potential implications of a third lockdown.
Nigel Terrington, chief executive, said: “We have made an encouraging start to the year. Good momentum in new business flows has led to strong growth in the pipelines, particularly for buy-to-let and development finance.
“Notwithstanding the economic environment, the group’s loan portfolios have continued to demonstrate the quality of our underwriting with low levels of arrears. With strong capital ratios and high levels of liquidity, we are well positioned to face the challenges and opportunities ahead.”