Bank of Montreal Issues Auto-Callable Equity-Linked Securities Tied to Amazon, Alphabet, and Meta Stock Performance

Structure and Terms of the Three-Year Linked Securities

The securities issued by Bank of Montreal are unsecured medium-term notes classified as senior obligations of the bank. Each security carries a face amount of $1,000 and matures on July 25, 2029, representing a three-year investment horizon from the July 23, 2026 issue date. The pricing date was July 20, 2026, and on that date the closing values of the three underlying stocks were: Amazon.com, Inc. at $249.99, Alphabet Inc. Class A stock at $351.99, and Meta Platforms, Inc. Class A stock at $645.85.

The securities are linked to the performance of the lowest-performing underlying stock among the three technology companies. This means that regardless of how the other two stocks perform, the investor's returns depend solely on whichever of the three stocks declines the most or rises the least. The mechanism for determining the lowest performer recalculates on each quarterly calculation day, shifting which stock determines the investor's contingent coupon eligibility and ultimate principal repayment status.

Contingent Coupon Payment and Memory Feature Mechanics

The securities pay a contingent coupon on a quarterly basis at an annual rate of 19.70%, conditional on the performance of the lowest-performing underlying stock. On each contingent coupon payment date, investors receive this quarterly coupon payment only if the closing value of the lowest-performing stock on the related calculation day is greater than or equal to its coupon threshold value. The coupon threshold value for each underlying stock is set at 70% of its starting value: $174.993 for Amazon, $246.393 for Alphabet, and $452.095 for Meta.

The securities incorporate a memory feature that distinguishes them from standard coupon-paying securities. If the closing value of the lowest-performing stock falls below the coupon threshold on any calculation day, no coupon payment is made for that quarter. However, if the lowest-performing stock subsequently recovers to close at or above the coupon threshold value on a later calculation day, the investor receives both the current quarter's coupon payment and all previously unpaid coupon payments at once, without interest accruing on the deferred amounts. If the lowest-performing stock never reaches the coupon threshold on any calculation day throughout the entire term, the investor receives no contingent coupon payments whatsoever.

Automatic Call Provisions and Early Termination Scenarios

The securities include automatic call provisions that allow Bank of Montreal to redeem the securities prior to stated maturity under specific conditions. If on any quarterly calculation day scheduled between January 2027 and April 2029, the closing value of the lowest-performing underlying stock reaches or exceeds its starting value, the securities will be automatically called. When an automatic call occurs, investors receive the face amount of $1,000 plus a final contingent coupon payment and any previously unpaid contingent coupon payments.

This automatic call feature creates an asymmetry in the investor's upside potential. If any single underlying stock returns to its pricing-date value, all investors in the security are obligated to have their securities redeemed, regardless of the performance of the other two stocks or their personal investment objectives. Investors have no downside protection if called early, as they receive par value plus accrued coupons, but they also forfeit any opportunity for further gains if the underlying stocks continue to appreciate after the call date.

Principal at Risk and Downside Exposure at Maturity

If the securities are not automatically called prior to stated maturity, investors face potentially significant principal loss. The downside threshold value for each underlying stock is set at 70% of its starting value, identical to the coupon threshold. At maturity on July 25, 2029, investors will receive the full face amount of $1,000 if and only if the closing value of the lowest-performing stock is greater than or equal to its downside threshold value (70% of starting value).

If the closing value of the lowest-performing stock on the final calculation day falls below its downside threshold, investors will lose more than 30% of their principal, potentially losing a substantially larger amount or even their entire investment. In this scenario, investors have full downside exposure to the lowest-performing stock from its starting value. For example, if Amazon stock is the lowest performer and declines 50% by maturity, investors would receive only 50% of their principal ($500 per $1,000 invested). The filing emphasizes that investors will not benefit from the appreciation of the better-performing stocks and will not receive any dividends on any of the underlying stocks.

Selection of Underlying Technology Stocks and Performance Asymmetry

The three underlying stocks—Amazon.com, Alphabet, and Meta Platforms—represent major American technology companies with substantial market capitalization and trading liquidity. By linking the securities to the lowest-performing stock, Bank of Montreal creates an investment where poor performance in any single stock determines the overall outcome, while strong performance in any stock provides no benefit. This structure concentrates downside risk and eliminates upside participation.

An investor who purchases these securities accepts the possibility that even if two of the three stocks perform excellently, the poor performance of a single stock will determine their return. The filing states explicitly: "You will not benefit in any way from the performance of the better performing Underliers. Therefore, you will be adversely affected if any Underlier performs poorly, even if the other Underliers perform favorably." This asymmetry is a defining characteristic of the security's risk profile and directly reflects the complexity of structured equity-linked products.

Offering Details and Pricing Information

The original offering price was $1,000 per security, with an agent discount of $23.25 per security. The total offering comprised 2,749 securities, generating gross proceeds of $2.749 million. After the agent discount of $63,914.25, net proceeds to Bank of Montreal totaled $2,685,085.75. The estimated initial value of the securities on the pricing date was $946.26 per security, reflecting the fact that the securities were sold above their estimated fair value.

Wells Fargo Securities, LLC served as the agent for the distribution and acted as principal in the transaction. The filing notes that Bank of Montreal's affiliate, BMO Capital Markets Corp., may pay a marketing fee of up to $2.00 per security to selected securities dealers in connection with distribution to other dealers. The securities are not listed on any exchange and are designed to be held either to maturity or until automatic call, indicating they are not intended as liquid, actively traded instruments.

Credit Risk and Issuer Default Considerations

The securities are unsecured obligations of Bank of Montreal, meaning all payments—including contingent coupon payments, automatic call payments, and principal repayment—are subject to the bank's creditworthiness and ability to perform. The filing emphasizes that investors have credit risk exposure to Bank of Montreal independent of the performance of the underlying stocks. If Bank of Montreal experiences financial distress or defaults on its obligations, investors could lose some or all of their investment, even if the underlying stocks perform well.

The filing explicitly states: "All payments on the securities are subject to our credit risk, and you will have no ability to pursue any Underlier for payment; if Bank of Montreal defaults on its obligations, you could lose some or all of your investment." Additionally, the securities are not insured by the Federal Deposit Insurance Corporation, the Deposit Insurance Fund, the Canada Deposit Insurance Corporation, or any other governmental agency. The filing further notes that the securities are not bail-inable notes and are not subject to conversion into Bank of Montreal's common shares or its affiliates' shares under the Canada Deposit Insurance Corporation Act.

Complexity, Valuation Estimates, and Risk Disclosure

Bank of Montreal explicitly acknowledges the complexity of the securities in the pricing supplement. The filing states: "The securities have complex features and investing in the securities involves risks not associated with an investment in conventional debt securities." The estimated initial value of the securities on the pricing date was $946.26 per security, substantially below the $1,000 original offering price. The filing notes that "the actual value of the securities at any time will reflect many factors and cannot be predicted with accuracy."

The pricing supplement references detailed risk factors contained in the accompanying product supplement, prospectus supplement, and prospectus. The filing emphasizes that neither the Securities and Exchange Commission nor any state securities commission or regulatory body has approved or disapproved of the securities or passed upon the accuracy or adequacy of the disclosure documents. The bank notes that "any representation to the contrary is a criminal offense," underscoring the regulatory warnings associated with securities sales practices.

Investor Considerations and Suitability Assessment

These securities are structured products requiring investors to accept multiple layers of risk and complexity simultaneously. Investors must understand not only the behavior of three individual technology stocks but also the lowest-performer mechanism that determines their outcome. The memory feature for contingent coupon payments adds additional complexity, as investors must track which quarters generated eligible coupon payments and understand the mechanism for accumulating deferred payments.

The combination of contingent coupons, automatic call provisions, and principal-at-risk structures means these securities are fundamentally different from conventional bonds. An investor who believes technology stocks will rise significantly might prefer direct stock ownership to capture unlimited upside, while the automatic call feature caps gains. Conversely, investors seeking downside protection will find none below the 70% coupon and downside thresholds. The suitability of these securities depends on an investor's specific views about technology stock volatility, their risk tolerance for principal loss, and their conviction that the three stocks will remain above 70% of their pricing-date values through at least the first automatic call date in January 2027.