Bank of Montreal Issues $977,000 Autocallable Notes Linked to TE Connectivity Shares

Pricing and Offering Structure of the Autocallable Notes

Bank of Montreal priced $977,000 of Senior Medium-Term Notes, Series K, on July 24, 2026, with settlement occurring on July 29, 2026. The notes were offered to public investors at 100% of principal amount, meaning the full $1,000 per $1,000 denomination price. BMO Capital Markets Corp., a subsidiary of Bank of Montreal, served as both the agent and selling agent for the offering. The filing indicates that the total agent's commission was 2.15%, equating to $21,005.50, with proceeds to Bank of Montreal of $955,994.50 after the commission was deducted. The notes will be issued in minimum denominations of $1,000 and integral multiples of $1,000, making them accessible primarily to institutional and high-net-worth investors.

The notes represent an unsecured obligation of Bank of Montreal and do not constitute savings accounts or deposits insured by the Federal Deposit Insurance Corporation, the Deposit Insurance Fund, or the Canada Deposit Insurance Corporation. All payments on the notes are subject to the credit risk of Bank of Montreal. According to the filing, the estimated initial value of the notes at pricing was $960.33 per $1,000 in principal amount, reflecting the mathematical assessment of the embedded option features and contingent payment structure at the time the pricing supplement was issued.

Reference Asset and Initial Level Parameters

The notes are linked to the ordinary shares of TE Connectivity plc, trading under the ticker symbol TEL on public exchanges. The filing establishes the Initial Level of TE Connectivity shares at $202.94 as of the pricing date of July 24, 2026. This initial level serves as the baseline for all subsequent calculations determining whether contingent coupons are paid and whether automatic redemption is triggered. The use of TE Connectivity shares as the reference asset means that investor returns are entirely dependent on the performance of this single equity security over the 13-month life of the notes.

The filing emphasizes that investing in the notes is not equivalent to a direct investment in TE Connectivity shares. Investors will receive no shares of TE Connectivity under any circumstances; all payments are made entirely in cash. The notes will not be listed on any securities exchange, restricting secondary market liquidity and making them less suitable for investors requiring trading flexibility. Additionally, the notes will not be subject to conversion into Bank of Montreal common shares or the common shares of any affiliates under subsection 39.2(2.3) of the Canada Deposit Insurance Corporation Act.

Contingent Coupon Payment Mechanism and Barriers

The notes pay contingent monthly coupons at a rate of 0.9167% per month, which equates to approximately 11.00% per annum. Each contingent coupon payment equals $9.167 for each $1,000 in principal amount, payable on the last business day of each month beginning August 31, 2026, and continuing through the maturity date. However, these coupon payments are contingent on the performance of TE Connectivity shares. The coupon barrier level is set at $121.76, representing 60.00% of the initial level of $202.94. If the closing level of TE Connectivity shares on any monthly observation date is greater than or equal to the coupon barrier level of $121.76, then the contingent coupon is paid on the corresponding contingent coupon payment date.

Observation dates occur three trading days prior to each scheduled contingent coupon payment date, giving investors and Bank of Montreal advance notice of coupon payments. If TE Connectivity shares close below the coupon barrier level of $121.76 on an observation date, the notes will not pay a contingent coupon for that observation period. This structure creates a scenario where investors forgo interest payments if the reference asset experiences significant depreciation, compounding their losses during market downturns. The filing notes that investors must be willing to lose some or all of their principal at maturity, indicating the issuer's view of the substantial downside risk inherent in this security.

Automatic Redemption Feature and Call Level

A key feature of these notes is the automatic redemption provision, which allows Bank of Montreal to terminate the notes early if TE Connectivity shares appreciate sufficiently. Beginning on January 26, 2027, if the closing level of TE Connectivity shares exceeds the call level of $202.94 (100% of the initial level) on any observation date, the notes will be automatically redeemed with no further action required from investors. Upon automatic redemption, investors receive their full principal amount of $1,000 per $1,000 in principal amount, plus the contingent coupon otherwise due on the following contingent coupon payment date, referred to as the call settlement date.

This automatic redemption structure means that investors' upside potential is capped at the point where TE Connectivity shares return to their pricing date level. If TE Connectivity shares appreciate significantly beyond $202.94, Bank of Montreal retains all gains above that level while investors receive only their principal plus accrued contingent coupons. The filing explicitly warns that investors must be willing to have their notes automatically redeemed prior to maturity and must be willing to forego any potential to participate in the appreciation of the reference asset. This feature fundamentally limits the attractiveness of the notes in a strongly rising equity market.

Principal Protection and Trigger Event Mechanics

The notes do not guarantee any return of principal at maturity unless they are automatically redeemed through the autocallable feature. Instead, the final payment is calculated based on the performance of TE Connectivity shares and whether a trigger event has occurred. A trigger event occurs if the final level of TE Connectivity shares on the valuation date of August 26, 2027, is less than the trigger level of $121.76, which is 60.00% of the initial level. The trigger level is identical to the coupon barrier level, meaning that TE Connectivity shares would need to decline 40% or more from the pricing date level for investors to suffer principal loss at maturity.

If a trigger event does occur, investors will lose 1% of the principal amount for each 1% decrease in the level of TE Connectivity shares from the initial level to the final level. This loss structure is calculated using a formula: for each $1,000 in principal amount, investors receive $1,000 + ($1,000 × Percentage Change), where Percentage Change is the quotient of (Final Level minus Initial Level) divided by Initial Level. For example, if TE Connectivity shares decline to $182.65 (90% of initial level), investors would receive $900 per $1,000 in principal amount, along with the final contingent coupon if payable. If shares fall below $121.76, the losses continue on a pro-rata basis, and theoretically, if shares decline to zero, investors could lose substantially all principal.

Timeline and Key Dates for Investors

The notes follow a clearly defined timeline established in the filing. The pricing date is July 24, 2026, with settlement occurring five business days later on July 29, 2026. Contingent coupon payments commence on August 31, 2026, and continue monthly through the maturity date. The first observation date for potential automatic redemption is January 26, 2027, when Bank of Montreal begins monitoring whether TE Connectivity shares have exceeded the call level. The valuation date is August 26, 2027, one week before maturity, when the final level of TE Connectivity shares is determined for calculating any principal loss or gain at maturity. The notes mature on August 31, 2027, exactly 13 months after settlement, at which point investors receive either their principal amount (if no trigger event has occurred) or a reduced amount reflecting any decline in TE Connectivity shares below the trigger level.

This 13-month maturity structure is relatively short compared to many structured notes, providing a defined investment horizon for investors. The compression of payment dates into monthly intervals creates frequent cashflow events, particularly if contingent coupons are paid consistently, which may appeal to income-focused investors. However, the compressed timeline also means that any significant move in TE Connectivity shares during the latter portion of the period could trigger automatic redemption or a trigger event with limited opportunity for recovery.

Risks Associated with Contingent Coupon Non-Payment

The contingent coupon structure introduces complexity and risk that investors must carefully evaluate. The filing discloses that if TE Connectivity shares close below the coupon barrier level of $121.76 on any observation date, no coupon is paid for that month. This creates a cumulative impact during periods of weakness in the equity market. For example, if TE Connectivity shares decline below $121.76 for several consecutive months, investors receive no income payments during that period, while their principal value remains at risk of further erosion at maturity. This feature transforms the notes from an income-generating security into a capital-at-risk instrument during market downturns.

The disclosure emphasizes that investors must be willing to lose some or all of their principal at maturity. This language suggests Bank of Montreal's acknowledgment that the risk profile is substantial. The filing does not provide historical examples or stress tests showing how frequently the contingent coupons might be missed under various market scenarios, nor does it quantify the probability of a trigger event occurring. Investors relying on the approximately 11.00% annualized coupon as income must therefore account for the possibility that a significant portion of these payments may never be received if market conditions deteriorate.

Credit Risk and Unsecured Status of the Notes

The filing explicitly states that all payments on the notes are subject to the credit risk of Bank of Montreal. The notes are unsecured obligations, meaning they are not backed by any collateral or specific assets. If Bank of Montreal faces financial distress or insolvency, noteholders would rank with other unsecured creditors and might not recover full value, regardless of the performance of TE Connectivity shares. This credit risk is layered on top of the market risk embedded in the reference asset, creating a two-dimensional risk exposure that investors must evaluate holistically.

The filing clarifies that the notes do not constitute deposits or savings accounts insured by the Federal Deposit Insurance Corporation, the Deposit Insurance Fund, the Canada Deposit Insurance Corporation, or any other governmental agency or instrumentality. This distinction is critical, as it removes any implicit safety net that might exist for traditional Bank of Montreal deposits. Investors must therefore view these notes as equity-like risk instruments backed only by Bank of Montreal's corporate creditworthiness and ability to meet its obligations as a financial services company.

Calculation Agent Role and Valuation Methodology

BMO Capital Markets Corp. serves as the calculation agent for the notes, responsible for determining all key values including observation dates, the final level of TE Connectivity shares, and payments due to investors. The calculation agent role creates an inherent conflict of interest, as Bank of Montreal stands to benefit if calculations favor early redemption or trigger events. While the filing acknowledges this potential conflict and states that BMOCM is the agent for the offering, it provides limited detail on governance safeguards or dispute resolution mechanisms if investors question calculation accuracy.

The filing notes that final levels and trigger levels are "as determined by the calculation agent and subject to adjustment in certain circumstances." This language indicates that the calculation methodology is not entirely formulaic and may permit discretionary adjustments. The filing references additional information regarding "Anti-dilution Adjustments to a Reference Asset that Is an Equity Security (Including Any ETF)" in the product supplement, but this document is not included in the filing excerpt, leaving investors without complete clarity on all adjustment scenarios Bank of Montreal might invoke during the notes' life.

Distribution and Secondary Market Considerations

The filing discloses that BMO Capital Markets Corp. earned a 2.15% agent's commission on the $977,000 principal amount. Additionally, the filing notes that "certain dealers who purchased the notes for sale to certain fee-based advisory accounts may have foregone some or all of their selling concessions, fees or commissions," indicating that distribution channels and pricing varied across investor segments. Investors purchasing through fee-based advisory accounts may have paid prices ranging from $978.50 to $1,000 per $1,000 in principal amount, depending on the specific channel and arrangement with their advisor.

The notes will not be listed on any securities exchange, significantly limiting secondary market liquidity. Investors seeking to exit their position prior to maturity would need to negotiate directly with Bank of Montreal or other market participants, likely at prices less favorable than the initial offering price. The absence of public market trading prevents real-time price discovery and may force investors to hold the notes through maturity or accept substantial haircuts on early sale. This illiquidity feature effectively locks investors into the 13-month maturity structure unless they are willing to incur significant exit costs.

Regulatory Status and Disclaimers

The filing includes standard SEC and state regulatory disclaimers. It states 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 pricing supplement, product supplement, prospectus supplement, or prospectus. Any representation to the contrary is noted as a criminal offense. This language is standard regulatory boilerplate but underscores that SEC approval should not be construed as an endorsement of the notes' risk profile or suitability for any particular investor.

The filing was registered under Registration Statement No. 333-285508 and represents the pricing supplement (424B2 form) to an earlier base prospectus and product supplement dated March 25, 2025. Investors are directed to read the pricing supplement together with these foundational documents to obtain complete terms and conditions. The filing emphasizes that the pricing supplement, product supplement, and prospectus together contain the complete terms of the notes and supersede all other prior or contemporaneous oral statements and written materials. This hierarchical structure of disclosure documents is common in structured notes offerings but may create complexity for retail investors seeking to understand the full scope of their obligations and rights.