Bank of Montreal Issues $700,000 in Oracle-Linked Structured Notes With Conditional Downside Protection

Structured Note Issuance Terms and Investor Participation Parameters

Bank of Montreal established the Contingent Risk Absolute Return Buffer Notes with a principal amount of $700,000 linked to Oracle Corporation common stock, the disclosure states. The notes were priced on July 24, 2026, with settlement occurring five business days later on July 29, 2026. The valuation date is scheduled for January 26, 2028, with final maturity on January 31, 2028, giving investors approximately an 18-month investment period. The notes were issued in minimum denominations of $1,000 with integral multiples thereof, and carry CUSIP number 06376LQH2.

The Initial Level, which serves as the baseline for calculating returns, was set at $114.99, representing the closing price of Oracle Corporation stock on the Pricing Date. The offering structure provides public investors with pricing at par (100%), while the bank retained 0.375% in agent commission, with proceeds to Bank of Montreal totaling $697,375.00. Certain fee-based advisory accounts received pricing adjustments ranging from $996.25 to $1,000 per $1,000 in principal amount, with some dealers foregoing selling concessions. The disclosure notes that referral fees of up to 0.35% of principal amount may be paid to certain dealers in connection with distribution.

Upside Return Structure and Maximum Payout Limitations

The notes incorporate a 100% Upside Leverage Factor, meaning investors receive dollar-for-dollar participation in Oracle stock price appreciation, subject to a Maximum Return cap of 80.60% and a Maximum Redemption Amount of $1,806.00 per $1,000 in principal. This structure ensures that even if Oracle stock rallies significantly beyond the 80.60% threshold, investors' returns are capped at that level. For example, if Oracle stock appreciates 85.60% from the Initial Level, investors would still receive only the Maximum Redemption Amount corresponding to an 80.60% return. The filing indicates this capped structure protects the issuer from unlimited upside exposure while providing meaningful upside participation for note holders.

The payment calculation for positive percentage changes operates as follows: if the Percentage Change multiplied by the 100% Upside Leverage Factor exceeds the 80.60% Maximum Return, the redemption amount equals the Maximum Redemption Amount. If the Percentage Change multiplied by the leverage factor falls below the maximum return threshold, investors receive $1,000 plus $1,000 multiplied by the Percentage Change and the Upside Leverage Factor. This two-tiered approach creates a straightforward positive return scenario for investors when Oracle stock advances from the $114.99 Initial Level.

Downside Buffer Protection and Conditional Return Mechanism

The notes feature a Buffer Level set at $86.24, equivalent to 75% of the Initial Level, providing protection against moderate stock price declines. The disclosure explains that if Oracle stock's Final Level falls below the Initial Level but remains at or above the Buffer Level, investors receive a positive return calculated as the percentage by which the price declines, up to the Maximum Downside Redemption Amount of $1,250.00 per $1,000 in principal. This means an investor with a 10% decline in Oracle stock (to approximately $103.49) would receive $1,100 per $1,000 invested—a 10% gain despite the underlying stock decline. The Maximum Downside Redemption Amount caps this buffer benefit at 25% return on the notes.

The Buffer Percentage of 25% establishes the threshold beyond which this protection terminates. According to the filing, investors will receive the full principal amount at maturity only if Oracle's stock does not decline by more than 25% from the Initial Level. Should the stock price fall between the Initial Level and the Buffer Level—a decline of up to 25%—the buffer protection mechanism converts the loss into a gain for note holders. This design reflects a risk transfer from investors to the issuer for moderate decline scenarios, effectively inverting negative equity returns into positive fixed income-like returns.

Severe Loss Scenarios Beyond Buffer Protection Level

The filing discloses that if Oracle Corporation stock declines more than 25% from the Initial Level, falling below the Buffer Level of $86.24, investors face substantial principal loss. In such circumstances, investors lose 1% of the principal amount for each 1% that the Final Level declines from the Initial Level in excess of the 25% buffer threshold. The calculation formula states that the redemption amount equals $1,000 plus $1,000 multiplied by the Percentage Change plus the Buffer Percentage. This inverts to produce losses when the Percentage Change is sufficiently negative.

The maximum potential loss reaches 75% of the principal investment amount, which would occur if Oracle stock declines to approximately $28.75 per share (a 75% decline from the $114.99 Initial Level). The disclosure demonstrates this scenario in its payoff example: if the Percentage Change reaches -75%, the hypothetical return of the notes would be -75%. This concentrated downside risk reflects the trade-off for the upside participation and downside buffer features; investors accept significant tail risk in exchange for improved returns in moderate scenarios. The filing explicitly warns that investors may lose a significant portion of principal amount if the Final Level falls substantially below the Buffer Level.

Valuation Framework and Estimated Initial Note Value

Bank of Montreal estimated the initial value of the notes at $967.87 per $1,000 in principal amount, based on terms established as of the pricing date. The disclosure emphasizes that this estimated value reflects the embedded characteristics of the notes—specifically the upside leverage factor, the downside buffer protection, and the return caps—discounted by the issuer's credit risk and market conditions at the time of pricing. The estimated value of $967.87 implies an implicit cost of approximately $32.13 per $1,000 in principal for the protection and return features embedded in the notes, though the disclosure cautions that actual value varies continuously and cannot be predicted with accuracy.

The filing states clearly that the estimated initial value represents a snapshot assessment based on prevailing market conditions and the issuer's creditworthiness as of the Pricing Date. Investors should recognize that secondary market values will fluctuate based on changes in Oracle stock price, volatility assumptions, interest rates, and Bank of Montreal's credit spreads. The disclosure notes that the actual value at any time will reflect many factors and cannot be predicted with accuracy, emphasizing the complexity of valuing structured products with embedded derivatives and contingent return mechanisms.

Credit Risk and Unsecured Obligation Status

The notes constitute unsecured obligations of Bank of Montreal, meaning all payments depend entirely on the issuer's creditworthiness and ability to meet its obligations at maturity. The filing explicitly states that the notes are not savings accounts or deposits insured by the United States Federal Deposit Insurance Corporation, the Deposit Insurance Fund, the Canada Deposit Insurance Corporation, or any other governmental agency or instrumentality. Unlike traditional bank deposits, investors in these notes assume full credit risk of Bank of Montreal as of the maturity date on January 31, 2028.

The disclosure further clarifies that the notes will not be subject to conversion into Bank of Montreal's common shares or the common shares of any of its affiliates under subsection 39.2(2.3) of the Canada Deposit Insurance Corporation Act. This explicitly removes any possibility of automatic capital conversion in a stress scenario. Investors must evaluate Bank of Montreal's creditworthiness independently; while the issuer is a major international financial institution, any deterioration in its financial condition could theoretically impair the return of principal and accrued returns at maturity.

Settlement, Listing Status, and Trading Restrictions

The notes settled on July 29, 2026, five business days following the July 24, 2026 pricing date. The filing discloses that the notes will not be listed on any securities exchange, restricting trading to over-the-counter transactions with Bank of Montreal or other market participants willing to facilitate secondary trades. Investors seeking liquidity prior to the January 31, 2028 maturity date would need to negotiate secondary market sales, which may be difficult to execute and could result in unfavorable pricing depending on market conditions and inventory availability among dealers.

The non-listing status, combined with the custom nature of these structured notes, implies limited pricing transparency for secondary transactions. There is no standardized exchange mechanism to establish fair market value, and bid-ask spreads may be wide. Additionally, the issuer notes that Bank of Montreal and its subsidiary BMO Capital Markets Corp. serve as both the selling agent and calculation agent, creating potential conflicts of interest in pricing disputes or valuation determinations. Investors should anticipate holding these notes to maturity rather than relying on secondary market exit options.

Reference Asset Characteristics and Anti-Dilution Provisions

The Reference Asset underlying these notes is Oracle Corporation common stock, trading under ticker symbol ORCL on the New York Stock Exchange. The filing references anti-dilution adjustment provisions contained in the accompanying product supplement dated March 25, 2025, which govern how the Initial Level, Buffer Level, and Final Level are calculated in response to corporate actions such as stock splits, dividends, or rights offerings. The disclosure states that the Initial Level, Buffer Level, and Final Level are subject to adjustment in certain circumstances, but does not specify those adjustments within the pricing supplement itself.

Notably, the notes provide no physical delivery of Oracle shares; Bank of Montreal will pay only cash on the Maturity Date. This distinction matters for investors who might otherwise hold Oracle stock for long-term appreciation. By structuring the notes as cash-settled derivatives rather than equity stakes, Bank of Montreal retains full economic interest in Oracle's shares and receives all dividends paid during the note's term. Investors receive only the conditional return linked to price appreciation or decline, not dividend income or voting rights in Oracle Corporation.

Calculation Methodology and Percentage Change Determination

The Percentage Change, which drives all payout calculations, equals the quotient of (Final Level minus Initial Level) divided by the Initial Level, expressed as a percentage. The Final Level is defined as the closing level of Oracle stock on the Valuation Date of January 26, 2028, while the Initial Level is $114.99 (the closing level on the Pricing Date of July 24, 2026). Bank of Montreal subsidiary BMO Capital Markets Corp. serves as the Calculation Agent responsible for determining the Final Level and computing all payment amounts. The filing subject's payment obligations to the occurrence of a market disruption event as described in the accompanying product supplement, suggesting that in extraordinary market circumstances, the calculation methodology or timing may be adjusted.

This calculation framework creates direct linkage between Oracle's stock performance and note returns, with no layering or scaling beyond the stated Upside Leverage Factor of 100%. For instance, if Oracle stock closed at $124.74 on the Valuation Date (an 8.5% increase), the Percentage Change would be 8.5%, and investors would receive $1,085 per $1,000 invested (assuming the 100% leverage and absence of any maximum return cap). The straightforward calculation methodology reduces opacity compared to some structured products, though the complexity of the multi-scenario payout structure requires careful analysis of different stock price outcomes.

Regulatory Filings and Risk Disclosure Framework

Bank of Montreal filed this pricing supplement pursuant to Rule 424(b)(2) on July 28, 2026, under SEC Registration Statement No. 333-285508. The disclosure states that this document is filed pursuant to a Prospectus dated March 25, 2025, a Prospectus Supplement dated March 25, 2025, and a Product Supplement dated March 25, 2025. The filing incorporates by reference the risk disclosures contained in the product supplement (beginning on page PS-5) and the prospectus supplement (beginning on page S-1), as well as additional risk factors in the base prospectus (beginning on page 8). The disclosure includes a statement that neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the notes or passed upon the accuracy of the documents, and that any contrary representation constitutes a criminal offense.

The issuer identifies "Selected Risk Considerations" on page P-5 of the pricing supplement, listing risks including credit risk of Bank of Montreal, the impact of market volatility on pricing, the non-listing status of the notes, the potential for significant principal loss, and the complexity of valuing the embedded features. The filing emphasizes that investing in the notes involves risks beyond those explicitly enumerated, and encourages investors to review the complete prospectus documentation. This multi-document structure reflects SEC structured product disclosure requirements and underscores the importance of comprehensive due diligence before committing capital.

Distribution Arrangements and Compensation Structure

The filing details the compensation structure for distribution of the notes, with Bank of Montreal retaining an agent commission of 0.375% of the total principal amount ($2,625.00 on the $700,000 offering). BMO Capital Markets Corp., a Bank of Montreal subsidiary, serves as both the agent for the offering and the selling agent, creating an internal financial incentive aligned with the issuance. The filing discloses that certain dealers who purchased notes for sale to fee-based advisory accounts may have foregone some or all of their selling concessions, with public offering prices in those accounts ranging from $996.25 to $1,000 per $1,000 in principal. This differential pricing acknowledges the reduced commission structure in advisory relationships where the client relationship generates ongoing advisory fees rather than transaction-based compensation.

The disclosure notes that Bank of Montreal or one of its affiliates will pay referral fees of up to 0.35% of principal amount to certain dealers in connection with distribution. These referral fees create additional incentives for third-party dealers to direct client flows toward these notes. The filing also indicates that the stated agent commission and proceeds to Bank of Montreal "reflect the aggregate amounts at the time Bank of Montreal established its hedge positions on or prior to the Pricing Date, which may have been variable and fluctuated depending on market conditions at such times." This statement acknowledges that the issuer dynamically hedged its exposure to Oracle stock price risk and the embedded options as market conditions evolved during the distribution period.