Bank of Montreal Launches $9.6 Million Autocallable Notes Linked to S&P 500 and Russell 2000 with Quarterly Contingent Coupons

Structured Note Design and Contingent Coupon Details

Bank of Montreal's Senior Medium-Term Notes, Series K, feature a structured design combining autocallable provisions with contingent coupon payments. The notes reference the S&P 500 Index (initial level 7,408.30) and the Russell 2000 Index (initial level 2,940.163). Contingent coupons of 2.70% per quarter commence October 28, 2026, payable only if both indexes close at or above their coupon barrier levels on observation dates.

The coupon barrier is set at 70% of each index's initial level—5,185.81 for the S&P 500 and 2,058.114 for the Russell 2000. If either index closes below its barrier on an observation date, no coupon is paid that quarter. This contingent coupon structure introduces variability in returns and requires investors to monitor index levels during the one-year term. Observation dates occur three trading days before each quarterly coupon payment.

Autocall Feature and Early Redemption Risk

The notes include an autocall feature allowing automatic redemption starting October 23, 2026. If on any observation date both indexes close above their call levels (equal to initial levels), the notes will be redeemed automatically without investor approval. Upon redemption, investors receive principal plus any due contingent coupon, with no further payments thereafter.

This autocall mechanism caps potential returns, as investors must exit if indexes perform strongly. Appreciation beyond initial levels is not captured once automatic redemption triggers. The call settlement date aligns with the contingent coupon payment date following the observation date. Investors must accept potential redemption from October 28, 2026 onward if market conditions meet the autocall criteria.

Principal Risk and Trigger Event Mechanics

These notes do not guarantee principal repayment at maturity. A trigger event occurs if either index closes below 70% of its initial level on any trading day between the pricing date (July 23, 2026) and valuation date (July 23, 2027). If triggered and the lowest performing index finishes below its initial level at maturity, investors incur losses proportional to the index decline.

For example, if the Russell 2000 declines 15% and is the worst performer, investors receive $850 per $1,000 principal plus any final contingent coupon if payable. Severe market drops could result in zero maturity payment. This one-to-one loss exposure underscores the principal risk inherent in the notes.

Offering Terms and Pricing

The notes were issued in minimum denominations of $1,000, totaling $9,588,000. Pricing occurred on July 23, 2026, with settlement on July 28, 2026, and maturity on July 28, 2027, providing a one-year investment horizon. The valuation date for final index levels is July 23, 2027.

Bank of Montreal set the public offering price at 100% of principal ($1,000 per $1,000 principal). The agent's commission was 0.375%, yielding net proceeds to the bank of 99.625%, or $9,552,045. Some dealers selling to fee-based advisory accounts may have sold notes between $996.25 and $1,000 per $1,000 principal. Referral fees of up to 0.35% may be paid to certain dealers.

Estimated Initial Value and Market Considerations

Bank of Montreal estimated the initial value at $985.34 per $1,000 principal, reflecting a discount from the offering price due to embedded options and contingent coupon features. This value depends on assumptions and market conditions as of pricing and may fluctuate thereafter.

The discount indicates costs embedded in the structured product. Investors should note potential secondary market discounts and limited liquidity, as the notes are unlisted securities. Early unwinding may result in significant price deviations from par.

Credit Risk and Issuer Obligations

Payments depend on Bank of Montreal's creditworthiness. The notes are unsecured obligations without collateral and rank accordingly. They are not insured by FDIC, CDIC, or any government agency. Investors bear full credit risk of the issuer.

BMO Capital Markets Corp., a subsidiary, acted as agent for pricing and distribution, presenting potential conflicts of interest as disclosed. Agent commissions and proceeds reflect hedge positions established around pricing.

Conversion and CDIC Protection

The notes will not convert into Bank of Montreal common shares or affiliates’ shares under subsection 39.2(2.3) of the Canada Deposit Insurance Corporation Act. Holders have no equity conversion rights, even in bailout or restructuring scenarios involving CDIC.

Risk Factors and Suitability

The prospectus highlights substantial risks including contingent coupon payments, no principal guarantee, automatic redemption limiting upside, and no direct participation in index gains beyond call levels. Investors must be prepared to lose principal, accept early redemption, and forgo index appreciation beyond thresholds.

This product suits investors seeking quarterly income willing to accept these risks. Prospective buyers should review all risk disclosures and consult advisors to ensure alignment with investment goals and risk tolerance.

Reference Indexes and Market Dynamics

The notes reference the S&P 500 Index (ticker SPX), representing 500 large-cap U.S. stocks, and the Russell 2000 Index (ticker RTY), comprising 2,000 small-cap U.S. stocks. The combined exposure introduces varied market dynamics, as the Russell 2000 typically exhibits higher volatility.

Returns are based on the worst-performing index, limiting upside if one index outperforms. This dual-index linkage introduces correlation risk and requires understanding of historical index behavior.

Regulatory Compliance and Disclosure

The SEC and state securities commissions have not approved or disapproved the notes or verified offering accuracy. The filing warns against false claims. The notes are unsecured, uninsured obligations subject to issuer credit risk.

Registered under No. 333-285508 and filed under Rule 424(b)(2) as a pricing supplement to March 25, 2025 documents, the offering meets SEC structured debt disclosure standards. Investors should thoroughly review all materials before investing due to product complexity.