Forecast Is Cut at City National

City National Corp. on Wednesday reported weaker-than-expected earnings for the first quarter and cut its profit forecast for the year, saying a slowdown in real estate had depressed the amount of funds deposited in escrow and title accounts.

The Beverly Hills-based bank earned $57.2 million, or $1.12 a share, up 3% from $55.5 million, or $1.09, a year earlier. Revenue totaled $207 million, up 5% from $197 million.

Wall Street had expected earnings of $1.21 a share. The bank reported earnings after the markets closed. Its stock had risen 4 cents on the day to $78. Its shares fell as low as $76 in after-hours trading.

City National, a specialist in private banking and commercial lending, said demand for business loans was strong, revenue from trust, investment and brokerage services rose, and delinquent loans were down 51%.

However, average deposits in escrow and title accounts, a specialty business for the bank, dropped to $1.2 billion from $1.5 billion during the quarter, forcing it to borrow at the federal funds rate, currently 4.75%, to fund its loans, and reducing its profit margin on lending.

Russell Goldsmith, City National’s chief executive, said Southern California’s housing markets didn’t seem to be headed for a big price drop. “It would appear that we’re getting that soft landing that a lot of people had hoped for,” he said. Goldsmith also told analysts that rising interest rates had caused some customers to withdraw deposits from low-interest accounts to invest elsewhere.

The bank said it expected earnings to increase 8% to 10% a share this year, down from a previous forecast of 9% to 12%.

Joe Morford, an analyst for RBC Capital Markets who owns City National stock, said the decline in lending margin was surprising. Nonetheless, he added, “It’s easy for people to overreact” to the lower lending margin. “Their other businesses were good, better than expected for the most part.”