* Company says it will vigorously defend disclosure approach
* Home Capital shares rise 16.5 percent on Friday
* Expects to report increase in adjusted 1st-qtr earnings
By Matt Scuffham
TORONTO, April 21 (Reuters) - Shares in Home Capital Group HCG.TO , Canada's biggest non-bank mortgage lender, rebounded on Friday as the company said it would defend itself against allegations by regulators that it withheld information about fraud by mortgage brokers.
The company also said it expects to post an increase in first-quarter earnings, before one-off items, compared with a year ago, driven by strong results in its core residential mortgage business.
Its shares soared as much as 16.5 percent on Friday, recovering the majority of Thursday's losses, when its shares slid 20 percent.
In a statement after the market closed on Wednesday, the Ontario Securities Commission (OSC) accused Home Capital of making "materially misleading statements" to investors and named its current chief financial officer and two former chief executive officers.
"We will continue to vigorously defend our approach to disclosure in the (OSC) proceeding. While the OSC process may take some time, management and the board are focused on continued profitable growth and industry leading customer service," Home Capital Chairman Kevin Smith said in a letter to shareholders on Friday.
The OSC issued allegations against former Home Capital Chief Executives Gerald Soloway and Martin Reid and current Chief Financial Officer Robert Morton and set a hearing on the matter for May 4.
Reid's contract was terminated in March, with longtime director Bonita Then taking over temporarily until a replacement is found as the company said it required "leadership that can bring to bear a renewed operational discipline."
Shares in Home Capital have shed nearly 60 percent of their value over the past two years.
In July 2015, the company said it had suspended contracts with 45 independent mortgage brokers after an investigation found they had falsified information about borrowers' incomes.
Home Capital said at that time that it had released the information following a request by the OSC.
The company said on Friday that it expects to report earnings before one-off items of C$1.02 for the first quarter, compared with C$0.96 a year ago.
National Bank of Canada analyst Jaeme Gloyn on Thursday reiterated his "underperform" stance on the stock and cut his price target to C$23 from C$27 previously.
Gloyn cited uncertainty around the leadership change, the ongoing OSC enforcement proceedings and a potentially negative impact from regulatory changes.
The province of Ontario on Thursday introduced a number of measures to cool Toronto's housing market including a tax on foreign buyers.