Bank of America Finance Introduces Contingent Income Callable Yield Notes Linked to Three Major Market Indices

Structure and Term of the Indexed Notes

The notes represent an approximately 2.5-year structured debt instrument issued by BofA Finance LLC and fully and unconditionally guaranteed by Bank of America Corporation. The notes are linked to three distinct price return indices: the Nasdaq-100 Technology Sector Index, the Russell 2000 Index, and the S&P 500 Index. The structure ties investor returns to the collective performance of these three indices rather than a single benchmark, introducing a multi-index dependency that heightens complexity. Investors will receive returns based on the performance of the least performing of these three indices, a structure that directly incentivizes monitoring all three benchmarks simultaneously and establishes a downside weighting toward whichever index underperforms the others during the investment period.

The notes are being offered in minimum denominations of $1,000 and whole multiples of $1,000 in excess thereof. The public offering price is set at $1,000 per note, with an underwriting discount of $7.50 per $1,000 in principal amount, resulting in proceeds before expenses to BofA Finance of $992.50 per note. The initial estimated value of the notes as of the pricing date is expected to fall between $935 and $985 per $1,000 in principal amount, reflecting the embedded derivatives and contingency features that reduce theoretical value below face amount. The disclosure states that the actual value of the notes at any time will reflect many factors and cannot be predicted with accuracy, a warning that emphasizes the complexity and variable nature of these instruments.

Contingent Coupon Payment Terms and Observation Mechanics

The notes feature a contingent coupon payment structure that requires satisfaction of a stringent performance condition. Specifically, a Contingent Coupon Payment of $10.167 per $1,000 in principal amount (equivalent to 1.0167% per month or 12.20% per annum) will be payable on any monthly observation date only if the closing level of each of the three underlying indices on that observation date remains greater than or equal to 70% of its starting value. The use of the word "each" rather than "any" is critical—this language indicates that all three indices must simultaneously exceed the 70% coupon barrier for any monthly payment to be due. This structure creates a scenario where even if two of the three indices perform robustly, if one index drops below the 70% threshold, no coupon will be paid that month.

The starting value for each underlying is defined as its closing level on the pricing date of July 21, 2026. Observation values are calculated as closing levels on applicable observation dates, which occur monthly throughout the life of the notes. The coupon barrier is fixed at 70% of the starting value for each index. This monthly observation mechanism means that investors face repeated coupon trigger assessments, and the contingency extends to the final observation date and maturity date. The filing indicates that coupon payments, including the final contingent coupon payment at maturity, depend on maintaining all three indices above the barrier level, creating a mathematical scenario where the probability of receiving all scheduled coupon payments decreases as the number of observation dates increases.

Optional Early Redemption Rights and Issuer Control

Beginning on October 26, 2026, BofA Finance retains the right to redeem all outstanding notes on any monthly call payment date. This optional early redemption feature provides the issuer with substantial control over the instrument's termination and allows the bank to manage duration and interest rate risk on its balance sheet. When exercising the redemption right, the issuer must provide notice to the trustee between five business days and 60 calendar days prior to the call payment date. The early redemption amount equals $1,000 per $1,000 of principal, plus any applicable contingent coupon payment if the observation condition has been satisfied on the corresponding observation date.

This structure creates asymmetric risk for investors: if the notes perform well and all coupons are paid, the issuer can call the notes and terminate the investment at par value plus the final coupon. However, if the notes underperform and coupons are not being paid, the issuer is less economically incentivized to call, leaving investors with a deteriorating instrument. The three-month call notice window provides the issuer with a substantial planning horizon while potentially limiting investor ability to hedge or adjust positions quickly in response to a call notice. Investors should note that no further amounts will be payable following an optional early redemption, effectively ending the relationship between investor and note at the issuer's discretion.

Principal Protection and Downside Risk Exposure

The notes incorporate a threshold value mechanism that determines whether principal protection applies at maturity. If the ending value of the least performing underlying remains greater than or equal to 60% of its starting value at the valuation date of January 22, 2029, the notes will be redeemed at par value (the principal amount) plus any final contingent coupon payment. However, if the ending value of the least performing underlying falls below 60% of its starting value, investors face full downside participation in the decline of that worst-performing index. Specifically, the redemption amount will equal $1,000 multiplied by the ratio of the ending value of the least performing underlying to its starting value, meaning that an investor could lose up to 100% of the principal amount invested.

This loss structure illustrates a critical asymmetry in the notes: investors receive capped upside participation (limited to the coupon payments if all three indices remain above barriers) while exposure to the downside is uncapped and extends to the entire principal amount. The disclosure emphasizes that if any underlying declines by more than 40% from its starting value, the investment becomes subject to 1:1 downside exposure to decreases in the value of the least performing underlying. This design means that an investor in these notes takes on significant equity market risk despite receiving a fixed-income-like vehicle, a structural feature that distinguishes these notes substantially from conventional debt securities. The loss exposure extends not just to moderate declines but potentially to catastrophic losses in the event of a severe market downturn affecting any one of the three underlying indices.

Credit Risk and Guarantee Structure

All payments on the notes—whether coupon payments, call redemption amounts, or maturity redemption amounts—are subject to the credit risk of BofA Finance LLC as the issuer of the notes and Bank of America Corporation as the guarantor. The full and unconditional guarantee by Bank of America Corporation provides investors with the backing of one of the largest financial institutions in the United States, which has historically maintained investment-grade credit ratings. This guarantee covers both principal and contingent income payments, meaning that if Bank of America were to experience financial distress or default, investors would face potential loss despite the nominal value of the notes.

The disclosure explicitly states that the notes are not FDIC insured and are not bank guaranteed, clarifying that while Bank of America provides a legal guarantee, this guarantee does not constitute an FDIC insurance obligation or reduce the unsecured debt nature of these instruments. The notes carry the general unsecured debt rating and credit risk associated with Bank of America's corporate debt. Investors holding these notes are effectively extending credit to BofA Finance LLC and Bank of America Corporation for a 2.5-year period, subordinating their claims to secured creditors and senior debt holders in any potential restructuring or bankruptcy scenario.

Valuation Framework and Initial Estimated Value

The disclosure provides an initial estimated value range of $935 to $985 per $1,000 in principal amount as of the pricing date, which falls significantly below the $1,000 public offering price. This discount of $15 to $65 per $1,000 of principal reflects the embedded derivatives and contingency features of the notes, as well as the probability-adjusted value of receiving the contingent coupon payments. The calculation of this estimated value requires sophisticated modeling of the joint probability that all three indices will remain above the 70% coupon barrier on each observation date, the probability distributions of the underlying indices over the 2.5-year period, and appropriate discount rates for the contingent cash flows.

The filing explicitly states that the actual value of the notes at any time will reflect many factors and cannot be predicted with accuracy, a cautionary statement underscoring the inherent uncertainty in valuing multi-index contingent instruments. Factors affecting value will include changes in the underlying index levels, changes in interest rates affecting discount rates, changes in implied volatility of the three indices, the time to various observation dates and maturity, and the credit spread of Bank of America Corporation. This dynamic valuation environment means that secondary market pricing of these notes may vary substantially over time, and investors seeking liquidity before maturity may find that secondary market prices differ significantly from either the initial estimated value or the initial purchase price.

Risk Factors and Non-Exchange Listing Status

The notes will not be listed on any securities exchange, limiting investor ability to execute liquid secondary market transactions. Investors seeking to exit these notes before maturity will need to locate a buyer independently or negotiate with a dealer willing to repurchase the notes at a potentially unfavorable spread. This illiquidity risk compounds the structural risks of the contingent income features and downside exposure, as investors cannot easily unwind positions in response to changing market conditions or revised expectations about the underlying indices. The lack of exchange listing also means that continuous price information will not be available through market quotation systems, potentially limiting price transparency.

The disclosure directs potential purchasers to review extensive risk factors beginning on page PS-9 of the pricing supplement, page PS-3 of the accompanying product supplement, page S-7 of the accompanying prospectus supplement, and page 7 of the accompanying prospectus. These risk sections address the differences between the notes and conventional debt securities, the contingent nature of coupon payments, the substantial downside risk to principal, the credit risk of Bank of America, the lack of exchange listing and corresponding liquidity constraints, and the complexity of valuing and monitoring three underlying indices simultaneously. The existence of substantial risk disclosure materials reflects the material risks embedded in this structured product.

Calculation Agent Role and Observable Pricing Data

BofA Securities, Inc., an affiliate of BofA Finance LLC, serves as both the calculation agent and selling agent for the notes. The calculation agent responsibility encompasses determining observation values on each observation date, calculating whether contingent coupon barriers have been satisfied, determining the least performing underlying for purposes of calculating the ending value and final redemption amount, and managing any calculations required in connection with optional early redemption or acceleration events. This role concentrates significant discretionary authority over valuation mechanics within an affiliate of the issuer, though the underlying index closing levels themselves are determined by external market data (Bloomberg symbols: NDXT for Nasdaq-100 Technology Sector Index, RTY for Russell 2000 Index, and SPX for S&P 500 Index).

The notes are calculated based on price return indices for each underlying, meaning that dividend payments on the constituent stocks of these indices are not reflected in performance calculations. This methodology can create divergence between the total return experienced by index investors (including dividends) and the price return that determines note performance. The filing specifies that the least performing underlying is the one with the lowest underlying return, calculated as the ratio of ending value to starting value expressed as a percentage. All observation dates, contingent payment dates, and call payment dates are enumerated in detailed schedules within the pricing supplement, allowing investors to identify the specific calendar dates on which observations will occur and payments may be made.

Underwriting and Distribution Arrangements

The underwriting discount is established at $7.50 per $1,000 in principal amount of notes, or 0.75% of principal, with this discount reducing the net proceeds received by BofA Finance to $992.50 per note. The disclosure notes that certain dealers purchasing notes for sale to certain fee-based advisory accounts may forgo some or all of their selling concessions, resulting in a potential offering price as low as $992.50 per $1,000 in principal amount for clients in those fee-based advisory arrangements. Additionally, the disclosure identifies that an affiliate of BofA Finance will pay a referral fee of up to $7.50 per $1,000 in principal amount in connection with distribution of the notes to other registered broker-dealers, creating a two-tier compensation structure for the distribution network.

This compensation arrangement incentivizes broker-dealer participation in distributing the notes while allowing for price variations based on the type of account and distribution channel. The underwriting discount and referral fee structure means that the effective distribution cost to BofA Finance could reach $15 per $1,000 in principal amount if referral fees are paid in addition to underwriting discounts, though the exact total distribution costs will depend on the specific distribution channels utilized. The registration statement numbers for these notes are 333-290665 and 333-290665-01, filed pursuant to Rule 424(b)(2) of the Securities Act of 1933, indicating that these are debt securities issued by a non-bank entity (BofA Finance LLC) with a guarantee from the bank holding company.

Events of Default and Acceleration Scenarios

The notes incorporate standard event of default provisions consistent with senior indenture terms applicable to BofA Finance debt securities. If an event of default occurs and is continuing, the amount payable to a holder upon acceleration will be calculated as if the acceleration date were the maturity date and as if the valuation date were the third trading day prior to acceleration. This methodology means that in a default scenario, the notes will be valued using the same framework as at maturity, with the least performing underlying determined as of the deemed valuation date and the ending value compared to the threshold value to determine whether principal loss applies. Any final contingent coupon payment applicable in a default scenario will be prorated by the calculation agent to reflect the length of the final contingent payment period.

The implications of this acceleration structure are significant: holders of notes in default cannot receive more favorable treatment than they would at stated maturity, and the calculation mechanism ensures consistency with the underlying product design. However, acceleration in the context of a broader financial crisis affecting Bank of America could result in a scenario where investors receive substantially reduced amounts both due to the valuation mechanics of the notes themselves (if indices have declined) and due to potential deficiency in Bank of America's ability to honor the guarantee. The disclosure does not specify procedures for notifying investors of acceleration or timing for payments following acceleration, elements typically governed by the indenture rather than the pricing supplement.