UPDATE 1-KeyCorp 1st-quarter profit tumbles amid turmoil

(Updates with share price, analyst comments, more detail)

NEW YORK, April 17 (Reuters) - KeyCorp (KEY.N: Quote, Profile, Research), a large U.S. Midwest bank, said on Thursday first-quarter earnings tumbled 37.7 percent, hurt by losses from loan sales and write-downs, and its shares fell 3 percent.

Cleveland-based KeyCorp said net income fell to $218 million, or 54 cents per share, from $350 million, or 87 cents per share, in the year-ago quarter.

Excluding one-time items, the company posted a profit of 58 cents per share, beating analysts expectation of 33 cents, according to Reuters Estimates.

But a Merrill Lynch analyst wrote in a research note it was expected shares would be under pressure due to a higher mix of construction and land development loans and substantial credit risk.

Key said that at March 31, nonperforming assets totaled $1.12 billion and represented 1.46 percent of portfolio loans, other real estate owned and other nonperforming assets, compared with 1.08 percent at Dec 31.

It said the increase was mainly due to deterioration of market conditions in the residential properties segment of its commercial real estate construction portfolio, principally in Florida and southern California.

"With nonperforming assets continuing to rise in this challenging credit environment, we continue to add to our loan loss reserve," Chief Executive Henry Meyer said in a statement.

The bank set aside $187 million for loan losses, up from $44 million a year earlier. Net interest margin for the quarter declined to 3.14 percent from 3.50 percent in the year ago period.