Bank of Montreal Issues Auto-Callable Market Linked Securities Tied to JPMorgan, Microsoft and NVIDIA Stock

Complex Structure Linking Returns to Worst-Performing Equity

Bank of Montreal has issued market-linked securities whose entire return profile depends exclusively on the performance of whichever of the three underlying stocks—JPMorgan Chase, Microsoft, or NVIDIA—performs worst relative to its starting value on each measurement date. This "lowest-performing Underlier" methodology means that investors receive no benefit from strong performance by one or two of the stocks if the third underperforms. The securities are fundamentally tied to the weakest link in the portfolio chain, creating asymmetric downside exposure. On the pricing date of July 24, 2026, the starting values established for calculation purposes were JPMorgan Chase at $353.21, Microsoft at $381.70, and NVIDIA at $206.84.

The disclosure states that investors will not participate in any appreciation of any Underlier beyond the terms specified and will not receive dividends on any of the three stocks. This structure effectively caps upside participation while potentially exposing investors to significant downside losses. All coupon and principal payments depend solely on movements in the worst-performing stock, meaning that even if two of the three holdings advance substantially, investors could receive reduced or zero contingent coupon payments depending on the performance of the lagging stock.

Contingent Coupon Mechanism with Memory Feature

The securities provide for contingent coupon payments at a rate of 18.30% per annum, paid on a monthly basis, but only if the closing value of the lowest-performing Underlier on the relevant calculation day equals or exceeds its coupon threshold value. The coupon threshold value for each stock is set at 70% of its starting value, meaning JPMorgan Chase coupon threshold is $247.247, Microsoft is $267.19, and NVIDIA is $144.788. If the lowest-performing stock closes below this 70% threshold on any given calculation date, no contingent coupon is paid for that month.

The filing emphasizes that the securities include a "memory feature," which allows investors to recover missed coupon payments. If the lowest-performing Underlier falls below the coupon threshold on one or more calculation days but subsequently closes at or above the threshold on a later calculation day, the issuer will pay the contingent coupon due for that subsequent date plus all previously unpaid contingent coupon payments without interest on the deferred amounts. However, if the lowest-performing stock remains below the coupon threshold on every calculation day throughout the entire term, investors receive no contingent coupons whatsoever. This structure creates a catch-up mechanism but offers no guarantee that missed coupons will ever be recovered if the worst-performing stock does not recover to the threshold level.

Automatic Call Provision and Early Redemption

The securities incorporate an automatic call feature that will trigger if the closing value of the lowest-performing Underlier on any monthly calculation date from October 2026 through June 2029 equals or exceeds its starting value. If this condition is met on any such date, Bank of Montreal will automatically redeem the securities at face amount plus a final contingent coupon payment and any previously unpaid contingent coupon payments. This feature means the securities could be called early if the worst-performing stock recovers to break-even relative to its starting price, limiting investors' upside participation even if a stock substantially outperforms its initial level.

The automatic call structure is designed to benefit the issuer by capping maximum loss exposure once one stock recovers to its starting value. For investors, this feature simultaneously limits potential gains while maintaining downside exposure if a stock remains depressed through the call-evaluation dates. The disclosure does not specify what happens to contingent coupons accrued between the last coupon payment date and the automatic call date, though the mechanism appears to provide for payment of the "final contingent coupon payment" at call.

Principal-at-Risk Structure and Physical Settlement at Maturity

If the securities are not automatically called prior to stated maturity on July 27, 2029, investors face a binary outcome determined by the closing value of the lowest-performing Underlier on the final calculation day. The downside threshold value for each stock is set at 70% of its starting value—identical to the coupon threshold. If the lowest-performing stock closes at or above this 70% threshold at maturity, investors receive the full face amount of $1,000 per security. However, if the lowest-performing stock closes below 70% of its starting value at maturity, investors do not receive principal repayment; instead, Bank of Montreal will deliver a number of shares of that worst-performing Underlier equal to the share delivery amount, calculated as face amount divided by the starting value and subject to adjustment for certain corporate events.

The disclosure explicitly warns that "the shares delivered at maturity are expected to be worth less than the face amount of the securities and may be worthless." This physical settlement provision means investors could receive shares worth substantially less than their $1,000 investment or even valueless shares in the event of catastrophic underperformance. The filing states investors will have "full downside exposure to the lowest performing Underlier from its starting value" if the stock closes below the downside threshold at maturity, creating a material risk of capital loss.

Estimated Valuation and Pricing Discount

The disclosure indicates that the estimated initial value of the securities on the pricing date is $957.94 per security, compared to the $1,000 original offering price. This approximately 4.2% discount to face value reflects the embedded costs and risks of the structured product, including the agent discount of $23.25 per security paid to Wells Fargo Securities, LLC. The filing notes that "the actual value of the securities at any time will reflect many factors and cannot be predicted with accuracy," cautioning investors that valuation is highly dependent on complex variables including implied volatility, interest rates, dividend expectations, and the credit risk of Bank of Montreal.

The total offering raised $1,861,000.00 at the original offering price, with 1,861 securities sold. After the agent discount of $43,268.25, Bank of Montreal retained net proceeds of $1,817,731.75. The filing discloses that Bank of Montreal's affiliate, BMO Capital Markets Corp., may pay a fee of up to $3.00 per security to selected securities dealers for marketing and distribution services, further reducing the effective proceeds to the issuer.

Credit Risk and Issuer Dependency

All payments on the securities, including contingent coupons and principal repayment or share delivery, are subject to the credit risk of Bank of Montreal. The filing explicitly states that "all payments on the securities are subject to our credit risk, and you will have no ability to pursue any Underlier for payment." This means investors cannot look directly to JPMorgan Chase, Microsoft, or NVIDIA for payment; they depend entirely on Bank of Montreal's ability and willingness to meet its obligations. If Bank of Montreal defaults, investors could lose some or all of their investment, regardless of how well the underlying stocks perform.

The disclosure emphasizes that the securities are unsecured obligations of Bank of Montreal and are not insured by the Federal Deposit Insurance Corporation, the Deposit Insurance Fund, the Canada Deposit Insurance Corporation, or any other governmental agency. The securities are also not bail-inable notes and are not subject to conversion into Bank of Montreal common shares under Canadian deposit insurance legislation, eliminating an additional potential avenue for recovery in a financial crisis scenario.

Market Characteristics and Investor Suitability Warnings

The filing describes the securities as having "complex features" and states that "investing in the securities involves risks not associated with an investment in conventional debt securities." Unlike traditional bonds that provide fixed interest payments and return of principal at maturity, these securities offer no fixed coupon guarantee and expose investors to substantial principal loss if the lowest-performing stock declines significantly. The securities are not exchange-listed and are "designed to be held to maturity or automatic call," indicating limited secondary market liquidity for investors seeking to exit early.

The disclosure directs investors to extensive risk disclosures beginning on page PRS-10 of the pricing supplement and references additional risk factors in the accompanying product supplement, prospectus supplement, and prospectus. The complexity and principal-at-risk nature of these securities suggest they are intended for sophisticated institutional or high-net-worth individual investors with substantial risk tolerance and understanding of structured equity products. The disclosure notes that neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the securities or passed upon the accuracy of the offering materials.

Regulatory Status and Distribution Arrangement

The securities were filed pursuant to Securities and Exchange Commission Rule 424(b)(2) and are part of Bank of Montreal's registration statement No. 333-285508, with a pricing supplement dated July 24, 2026. The offering references an existing Product Supplement No. WF1 dated March 25, 2025, a Prospectus Supplement dated March 25, 2025, and a Prospectus dated March 25, 2025, indicating these securities are part of a larger registered offering framework established earlier. Wells Fargo Securities, LLC served as the agent for distribution and is acting as principal in the transaction.

The structure of paying distributor fees through Bank of Montreal's affiliate BMO Capital Markets Corp. suggests a coordinated distribution effort involving multiple market participants. The securities became effective upon filing of the pricing supplement and the issue date is specified as July 29, 2026, five business days after the pricing date. The filing does not indicate an offering deadline or period for continued sales, though standard market practice would suggest sales continued for a period following the pricing date.

Starting Values and Threshold Calculations

The specific starting values established on the July 24, 2026 pricing date create the baseline from which all performance measurements are calculated. JPMorgan Chase starting value of $353.21 establishes a coupon and downside threshold of $247.247 (70% of starting value). Microsoft's $381.70 starting value creates thresholds of $267.19. NVIDIA's $206.84 starting value creates thresholds of $144.788. These fixed thresholds remain constant throughout the three-year term of the securities and determine whether contingent coupons are paid each month and whether principal is repaid or shares are delivered at maturity.

The use of the lowest-performing Underlier means that even if all three stocks remain above their individual 70% thresholds, if one stock declines more than the others, that stock's relative underperformance will determine whether contingent coupons are paid. For example, if JPMorgan trades at $240 (below its $247.247 threshold), Microsoft at $380 (above its threshold), and NVIDIA at $150 (above its threshold), no contingent coupon would be paid because JPMorgan, as the lowest performer, has fallen below the threshold, despite the other two stocks performing well above their thresholds.

Material Risks for Investors and Loss Scenarios

The filing identifies several material risks inherent in the securities structure. Investors bear full downside exposure to whichever stock performs worst if that stock falls below 70% of its starting value by maturity, potentially resulting in the receipt of worthless shares. The memory feature for missed contingent coupons provides no guarantee of recovery if the worst-performing stock never bounces back above the coupon threshold. Investors have no upside participation beyond the automatic call level, meaning they cannot benefit from strong appreciation in the underlying stocks beyond break-even for the worst performer.

The contingent coupon is entirely dependent on the lowest-performing stock rather than being based on the average, best, or even a weighted return of the three stocks. This construction creates a scenario where investors receive substantial coupon payments only if all three stocks remain relatively strong, and receive zero coupons if any single stock deteriorates significantly. The credit risk of Bank of Montreal represents an additional layer of risk beyond market risk, meaning investors could experience losses unrelated to stock performance if the issuer experiences financial distress or default.