A Brexit-induced slowdown in UK's housing market has taken a toll on mortgage lenders as prices and demand for property have fallen since the country decided to leave the European Union.
Paragon's net interest margin - a measure of underlying profitability which calculates the difference between what it earns from loans and pays for deposits - improved by 8 basis points to 224 basis points.
"This was achieved despite maintaining cautious liquidity levels in the face of Brexit-related market uncertainties," the company said in a statement.
In an industry that is facing stiff competition and navigating through regulatory and tax policy changes, improving profit margins has been difficult for mortgage lenders with bellwether Nationwide on Tuesday saying that its net interest margin fell in the year to April 4.
Earlier, lender CYBG Plc also said its net interest margin was hit by mortgage pricing pressures, while OneSavings Bank Plc, which is set to create one of Britain's biggest specialist lenders in a merger with Charter Court Financial Services Group Plc, had forecast slightly lower margins.
Paragon, which has worked to transform into a banking group focussed on small- and medium-sized businesses and consumers in specialist lending markets, said underlying profit rose 8.7% to 79.8 million pounds in the six months ended March 31.
Basic common equity tier 1 ratio - a gauge of a bank's financial strength - was 13.7% vs 15.5% a year earlier.
The specialist lender, which entered the commercial lending market after obtaining a banking licence in 2014, said lending volume rose 30.2% to 1.29 billion pounds.
(Reporting by Yadarisa Shabong and Noor Zainab Hussain in Bangalore; editing by Gopakumar Warrier)