First Tennessee National Corp. - a favorite among analysts who cover regional banking companies - was downgraded Wednesday by Salomon Brothers on the basis of price.

Analyst Sheri Ptashek cut her rating on the Memphis holding company to "hold" from "buy."

Ms. Ptashek said she remains optimistic about the company because of its strong lines of fee-income business. She is sticking to her 1996 and 1997 earnings estimates of $2.85 and $3.20 per share.

However, as the company's stock nears the $35 target, it "becomes less attractive as a new money investment," she said.

Salomon's 12-month price target for First Tennessee stock is $35; shares fell 12.5 cents to $33.25 on Wednesday.

Ms. Ptashek said she did not raise her price target because she believes First Tennessee will find the rest of the year challenging as interest rates climb.

She said the company is more interest rate sensitive than other banks because of its bond division and national mortgage business.

First Tennessee's bond division, which markets agency and treasury securities to smaller banks, "is weaker than expected, and it has suppressed earnings," she said.

Most analysts continue to be bullish on First Tennessee.

Analyst Bradley Ball of CS First Boston, who has a "buy" rating on the bank and a 12-to-18-month price target of $40, said First Tennessee is one of his top picks because it relies less on spread revenue than traditional banks.

"In an environment where interest rates are rising, where loan growth is slowing, and where credit quality is gradually deteriorating, a bank that has a diversified revenue stream, which is fairly fast growing, should outperform," he said.

Mr. Ball conceded that economic swings have an impact on the mortgage business, but he added that the company has a large servicing portfolio, which gives it a steady stream of income when originations are low.

"The diversity of revenue stream should command a higher multiple than they are trading right now," he said.

Analyst Michael Mayo also continues his "buy" rating on First Tennessee, predicting the stock can reach $42 in 12 months.

The stock is among Lehman's least expensive stock, he said.

The company has also weathered a high interest rate environment before, Mr. Mayo said.

"The bond division revenues did not fall by much when interest rates spiked up in late 1994," he said. "They didn't expose themselves to large positions."

In other market news, the consensus earnings estimate reported by First Call Corp. for Keystone Financial Corp. dropped last week to $1.88 from $2.81, reflecting the company's recent three-for-two stock split. (See table below.)

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