Bank of Montreal Issues US$2.1 Million Contingent Risk Notes Linked to S&P 500 and NASDAQ-100 Indexes

Structured Note Terms and Payment Features

Bank of Montreal's pricing supplement discloses that the notes are designed with a dual-index linkage structure tied to the least performing of the S&P 500 Index (Initial Level: 7,411.98) and the NASDAQ-100 Index (Initial Level: 28,128.34), both closing levels as of the Pricing Date of July 24, 2026. The notes feature a 100% Upside Leverage Factor, meaning investors participate dollar-for-dollar in positive price movements of the lesser-performing index, subject to a Maximum Return cap of 15.90%. The Maximum Redemption Amount at maturity is US$1,159.00 per US$1,000 in principal amount, limiting upside exposure regardless of actual index performance.

In declining market scenarios, the notes incorporate what the disclosure terms an "Absolute Return Buffer," allowing investors to receive positive returns even if the Least Performing Reference Asset declines, provided the decline does not exceed 20%. The Buffer Level is set at 80% of the Initial Level—specifically 5,929.58 for the S&P 500 Index and 22,502.67 for the NASDAQ-100 Index. Under this feature, investors will receive the Maximum Downside Redemption Amount of US$1,200.00 per US$1,000 in principal (a 20% return) if the Least Performing Reference Asset declines by exactly 20% from its Initial Level.

Downside Risk and Loss of Principal

The disclosure makes explicit that investors face substantial downside risk if the Least Performing Reference Asset falls more than 20% below its Initial Level. In such scenarios, the filing states that investors will lose 1% of principal for each 1% decline in the Least Performing Reference Asset beyond the 20% buffer level. This means that if either index declines more than 20%, the notes cease to offer downside protection, and losses mount proportionally with further deterioration in the weaker index's performance.

The filing emphasizes that in extreme scenarios, investors could lose up to 80% of their principal amount at maturity. This significant loss potential exists because the notes are linked to the least performing of the two indexes; if the S&P 500 declines 25% while the NASDAQ-100 advances, investors would experience losses based on the S&P 500's underperformance. The notes do not bear interest during the 15-month holding period, meaning there is no coupon income to offset potential capital losses, and the entire return profile depends solely on index price movements.

Issuance Terms and Pricing Structure

Bank of Montreal established the offering pricing on July 24, 2026, with settlement expected July 29, 2026. The notes were priced at par (100% of principal), generating US$2,100,000.00 in gross proceeds. BMO Capital Markets Corp., a subsidiary of Bank of Montreal, serves as both the calculation agent and selling agent for the offering. The filing discloses that the agent's commission was 0.50% of the aggregate principal amount, totaling US$10,500.00, with proceeds to Bank of Montreal of US$2,089,500.00 after commission deduction.

The disclosure notes that commissions and proceeds reflected aggregate amounts established when Bank of Montreal hedged its positions on or prior to the Pricing Date, and that these figures may have been variable and subject to market condition fluctuations. For certain fee-based advisory accounts, dealers foregoed portions of selling concessions, and the public offering price in these accounts ranged between US$995.00 and US$1,000.00 per US$1,000 in principal amount. The Valuation Date is scheduled for October 26, 2027, with the maturity date following three business days later on October 29, 2027.

Credit Risk and Regulatory Protections

The filing explicitly discloses that all payments on the notes are subject to the credit risk of Bank of Montreal, establishing that investors bear counterparty risk in addition to market risk linked to index performance. The notes are characterized as unsecured obligations of the bank and explicitly are not savings accounts or deposits insured by the Federal Deposit Insurance Corporation, the Deposit Insurance Fund, the Canada Deposit Insurance Corporation, or any other governmental agency. This distinction is material because investors have no deposit insurance protection and rank as unsecured creditors in any Bank of Montreal insolvency scenario.

The filing also notes that the notes will not be subject to conversion into Bank of Montreal common shares under subsection 39.2(2.3) of the Canada Deposit Insurance Corporation Act, clarifying the capital treatment of these instruments. The notes will not be listed on any securities exchange, meaning investors seeking liquidity before the maturity date would need to transact in over-the-counter markets with limited transparency and potentially significant bid-ask spreads.

Estimated Initial Value and Fair Value Considerations

The pricing supplement discloses that on the Pricing Date, based on the disclosed terms, the estimated initial value of the notes was US$990.89 per US$1,000 in principal amount, representing an implied discount of approximately 0.91% from the US$1,000 offering price. This valuation takes into account the structural characteristics of the notes, including the leverage factor, upside cap, and downside buffer protection. The filing cautions that the estimated initial value was calculated on the Pricing Date using the specific terms disclosed and that "actual value of the notes at any time will reflect many factors and cannot be predicted with accuracy."

The difference between the US$1,000 offering price and the US$990.89 estimated value suggests embedded costs or unfavorable terms that reduce the fair value relative to par. The filing does not provide detailed valuation methodology, but the disclosed gap indicates that investors purchasing at the US$1,000 offering price begin with a theoretical embedded loss, which must be overcome through index appreciation or downside protection triggers before the investment generates positive returns.

Index Selection and Reference Asset Performance Linkage

The notes are linked to two major equity indexes: the S&P 500 Index (ticker SPX) and the NASDAQ-100 Index (ticker NDX). The "Least Performing Reference Asset" concept means that if the S&P 500 appreciates 10% while the NASDAQ-100 appreciates only 5% over the investment period, the entire note payoff is based on the 5% NASDAQ-100 return. This structure creates asymmetric exposure—investors benefit fully only if both indexes perform similarly strongly, while a divergence favoring either index results in returns tied to the weaker performer.

The Percentage Change metric is calculated using the straightforward formula of (Final Level minus Initial Level) divided by Initial Level, expressed as a percentage. The Final Level is determined by the closing level of each Reference Asset on the Valuation Date of October 26, 2027. BMO Capital Markets Corp. serves as the Calculation Agent responsible for determining final index levels and calculating redemption amounts. The filing notes that Final Levels are "subject to adjustment in certain circumstances" referencing adjustments described in the product supplement, such as index composition changes or calculation methodology modifications.

Market Disruption and Valuation Date Adjustments

The filing indicates that the Valuation Date of October 26, 2027, and Maturity Date of October 29, 2027, are "subject to the occurrence of a market disruption event, as described in the accompanying product supplement." While the pricing supplement does not detail what constitutes a market disruption event, this language signals that if trading in either underlying index is materially disrupted on the Valuation Date, the dates may be postponed. Investors should consult the referenced product supplement for complete details on disruption events and valuation adjustments, as this could affect when final index levels are locked and when redemption proceeds are paid.

The three-business-day gap between the Valuation Date and Maturity Date allows Bank of Montreal time to calculate final index levels, determine the least performing reference asset, compute the Percentage Change, and calculate redemption amounts. During this settlement period, investors remain exposed to Bank of Montreal's credit risk, though by that point the economic exposure to index movements has been locked in based on the Valuation Date closing levels.

Comparison to Direct Index Investment

The filing includes an explicit disclaimer that "Investing in the notes is not equivalent to a hypothetical direct investment in the Reference Assets." This underscores that the structured features—the leverage factor, upside cap, downside buffer, and loss-of-principal mechanics beyond the buffer—create a payoff profile materially different from owning the underlying indexes directly. A hypothetical direct investment in equal proportions of the S&P 500 and NASDAQ-100 would have unlimited upside and unlimited downside, whereas the notes cap upside at 15.90% and cap downside protection at 20% before losses compound.

The filing provides a payoff example table illustrating hypothetical returns across various index performance scenarios. For example, if the Least Performing Reference Asset appreciates 20.90%, the note return is capped at the Maximum Return of 15.90%, yielding US$1,159.00 per US$1,000 invested. If the index appreciates 11%, the note return equals 6%, yielding US$1,060 per US$1,000. If the index declines 10% but remains above its Buffer Level, the investor receives a positive 10% return (US$1,100 per US$1,000 principal). If the index declines 20% to exactly the Buffer Level, the investor receives the US$1,200 Maximum Downside Redemption Amount.

Offering Documentation and SEC Compliance Status

The pricing supplement was filed pursuant to Rule 424(b)(2) under the Securities Act of 1933, as part of Registration Statement No. 333-285508. The document references and is supplemental to a base Prospectus dated March 25, 2025, a Prospectus Supplement dated March 25, 2025, and a Product Supplement dated March 25, 2025. This multi-part disclosure structure means that complete offering information requires review of all referenced documents, not solely the pricing supplement. The regulatory filing date for this pricing supplement is July 28, 2026, four days after the Pricing Date, as required by securities regulations.

The filing includes standard SEC disclaimers that neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the notes or passed on the accuracy of the disclosure documents. The filing warns that any representation to the contrary is a criminal offense. These notes carry a CUSIP number of 06376LNG7, enabling investors and market participants to track and identify the specific security in trading and custodial systems.

Investor Suitability and Risk Profile Matching

Bank of Montreal's disclosure indicates these notes are designed for "investors who are seeking 1-to-1 positive return based on any appreciation" in the least performing index, combined with downside buffer protection. This positioning suggests the notes target investors with moderate risk tolerance who want defined upside potential (capped at 15.90%) combined with protection against moderate declines (up to 20%). However, the notes are unsuitable for investors unable to tolerate potential losses exceeding 20% of principal, as the filing explicitly warns that losses can reach 80% in severe market declines.

The filing states that investing in the notes "involves risks, including those described in the 'Selected Risk Considerations' section" of the pricing supplement, as well as sections in the product supplement and prospectus supplement. The complete risk factor disclosure spans multiple documents and includes counterparty risk, market risk, leverage risk, liquidity risk, and other factors. The filing cautions that the estimated initial value of US$990.89 per US$1,000 "cannot be predicted with accuracy," meaning that any investor considering secondary market purchase or valuation before maturity faces significant valuation uncertainty.