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BANGALORE, April 22 (Reuters) - South Financial Group Inc (TSFG.O: Quote, Profile, Research) posted a surprise quarterly loss as the financial services firm increased its provision for bad loans eight-fold to meet losses related to its residential and land development portfolios in Florida.

Shares of the Greenville, South Carolina-based company fell 18 percent in trading after the bell.

"At the end of the first quarter, residential construction market weakness, particularly in Florida, became more pronounced, and net charge-offs and nonperforming assets increased reflecting the stressed environment," Chief Executive Mack Whittle said in a statement.

Banks with heavy exposure in the Florida region have been among the worst hit in the current crisis as real-estate prices in the state tumbled and defaults soared amidst the housing meltdown.

The bank has 66 branches in Florida.

In March, Morgan Stanley had added South Financial to its "highest conviction underweight" list, saying banks with most exposure to construction and home equity loans were expected to take more losses and would need to build more reserves than their less-exposed peers.

Colonial BancGroup (CNB.N: Quote, Profile, Research), another bank plagued by the deteriorating real-estate market in Florida, on Monday reported first-quarter profit much below Wall Street estimates and set plans to raise capital.

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