Bank of America Finance Issues $228 Million Digital Return Notes Linked to Three Major Stock Indices

Structure and Pricing Terms of the Structured Securities Offering

Bank of America Finance LLC has structured the Digital Return Notes as equity-linked instruments that combine elements of principal protection with conditional upside participation. The notes were priced at $1,000.00 per note with an underwriting discount of $21.75 per $1,000 in principal, resulting in net proceeds to the issuer of $978.25 per note before expenses. The total offering size reached $228 million in principal amount, with dealers earning up to $4.275 million in aggregate underwriting compensation. The notes will not trade on any securities exchange and carry a CUSIP identifier of 09712GXT6.

The initial estimated value assigned to the notes as of the pricing date was $970.60 per $1,000 in principal amount, significantly below the public offering price of $1,000. This valuation gap reflects the impact of Bank of America's internal funding rate, underwriting discounts, referral fees, and hedging-related charges embedded in the product structure. The company disclosed that the public offering price exceeds the initial estimated value because these cost factors reduce the economic terms available to investors relative to the theoretical fair value calculated on the pricing date.

Index Performance Thresholds and Payment Mechanics at Maturity

The redemption outcome for investors depends entirely on the closing levels of three major stock indices on the valuation date of August 20, 2027. The Nasdaq-100 Index started at 28,604.23 with a threshold level of 20,022.96 (70 percent of starting value); the Russell 2000 started at 2,942.429 with a threshold of 2,059.700; and the S&P 500 started at 7,443.28 with a threshold of 5,210.30. If the ending value of each index meets or exceeds its respective threshold level, investors receive the digital payment of $1,100 per $1,000 in principal, representing a 10 percent total return over the note's 13-month term. This binary payout structure means investors either capture the 10 percent return or face potential principal loss with no intermediate outcomes.

Should the least performing of the three indices decline below its threshold level (meaning that index has fallen more than 30 percent from its starting value), investors face proportional losses tied to that underperforming index. The documentation makes clear that in the adverse scenario, the redemption amount can fall below 70 percent of the principal investment, exposing investors to the possibility of losing up to 100 percent of their capital. The notes carry no periodic interest payments, meaning the entire return opportunity is compressed into the maturity date payment based on the index performance measurement taken on August 20, 2027, subject to postponement rules detailed in the product supplement.

Credit Risk and Guarantor Backing for Structured Notes

Bank of America Corporation provides an unconditional guarantee of the Digital Return Notes, backing the payment obligations of BofA Finance LLC as issuer. This guarantee structure means that redemption payments and any principal repayment depend on the credit standing of both BofA Finance as the direct issuer and Bank of America Corporation as the guarantor. The notes represent senior unsecured obligations under Bank of America's existing indenture framework. In the event of an Event of Default as defined in that indenture, note holders would have acceleration rights permitting them to demand immediate payment calculated as though the acceleration date were the maturity date, with index levels measured on the third trading day prior to acceleration.

The disclosure documentation explicitly states that the notes are not FDIC insured, carry no bank guarantee despite the BofA corporate relationship, and may decline in value. Credit risk represents a foundational consideration for potential investors, as the payment of any amount at maturity depends on Bank of America's continued financial viability. In the event of default in payment at maturity or upon acceleration, the notes do not accrue default interest, meaning investors would not receive compensation for delayed payments beyond the original redemption calculation.

Distribution and Underwriting Compensation Structure

BofA Securities, Inc., an affiliate of BofA Finance LLC, serves as both the calculation agent and the selling agent for the Digital Return Notes. The company disclosed that BofA Securities may receive referral fees of up to $3.00 per $1,000 in principal amount from other registered broker-dealers participating in the distribution. Additionally, certain dealers purchasing notes for sale to fee-based advisory accounts may forgo some or all of their selling concessions, permitting investors in those accounts to purchase at prices as low as $978.25 per note, equal to the net proceeds amount before expenses.

The offering structure permits flexibility in the distribution channel while maintaining the core economics for BofA Finance. The underwriting discount of $21.75 per $1,000 in principal amount translates into $4.275 million in aggregate compensation across the $228 million offering. By permitting dealers to waive concessions for advisory accounts and through the use of referral fee arrangements with other broker-dealers, Bank of America has created a distribution model that accommodates different investor classes while preserving the issuer's funding advantage inherent in its lower internal borrowing costs compared to market rates for conventional debt securities.

Economic Terms and Internal Funding Rate Advantages

Bank of America disclosed that the economic terms of the Digital Return Notes reflect the company's internal funding rate—the rate at which BAC would fund the issuance through its own capital markets operations. This internal rate is typically lower than the rate BAC would pay if issuing conventional fixed or floating rate debt securities in the public market. The difference between the internal funding rate and market rates, combined with underwriting discounts and hedging-related charges, reduced the economic value of the notes to purchasers while enhancing the issuer's profitability on the transaction.

The filing indicates that Bank of America's affiliates enter into related hedging arrangements to manage the company's exposure to the three underlying indices. These hedging costs, along with the structuring and distribution expenses, are embedded in the spread between the $1,000 public offering price and the $970.60 initial estimated value. Investors should recognize that the pricing of the notes incorporates these various cost layers, reducing the real economic benefit available to note purchasers relative to the theoretical fair value of the index-linked payoff structure alone.

Risk Factors Specific to Digital Return Note Characteristics

The documentation emphasizes that Digital Return Notes differ materially from conventional debt securities. Traditional bonds provide periodic coupon payments and return of principal at maturity regardless of market conditions (absent default). In contrast, these notes tie redemption entirely to index performance with no interest payments and potential for total principal loss. The binary nature of the payout—either receiving 10 percent return or facing downside exposure—means investors must have conviction about the probability that all three indices will remain above their 70 percent thresholds through August 2027.

The least-performing index determines the outcome for all three underlying indices, creating a correlation risk that investors should evaluate carefully. A sharp decline in any single index below its threshold level affects the entire investment regardless of how the other two indices perform. Market volatility over the 13-month period could trigger barrier breaches, particularly if economic cycles create significant dispersion in performance across large-cap (S&P 500), mega-cap technology (Nasdaq-100), and small-cap (Russell 2000) equities. The notes also expose investors to the credit risk of Bank of America Corporation, meaning a deterioration in the company's credit rating could impact the secondary market value of the notes even before maturity.

Regulatory Filing and Registration Details

The Digital Return Notes were registered under SEC Registration Statements Nos. 333-290665 and 333-290665-01 and filed pursuant to Rule 424(b)(2) as a pricing supplement to a prospectus dated December 8, 2025, with a Series A prospectus supplement also dated December 8, 2025, and a Product Supplement EQUITY-1 dated December 8, 2025. The pricing supplement was filed with the SEC on July 20, 2026, two days before the scheduled issuance. This registration structure permits BofA Finance to issue equity-linked notes under an existing shelf registration framework, with the specific terms set forth in the pricing supplement that accompanies the base prospectus documents.

The SEC has not approved or disapproved the notes as part of its review process, nor has the commission made any determination regarding the truthfulness or completeness of the disclosure materials. As with all securities offerings, the SEC's role is limited to ensuring that required disclosure is provided rather than evaluating the investment merits or fairness of the security's terms. Investors should carefully review all three component documents—the base prospectus, the series prospectus supplement, and the pricing supplement—to fully understand the risks and rights associated with the notes.

Valuation Considerations and Secondary Market Expectations

The initial estimated value of $970.60 per note reflects a $29.40 discount to the $1,000 public offering price, representing approximately 2.94 percent of principal. This valuation gap illustrates the embedded costs and issuer profit margins built into the structured product at launch. The actual value of the notes at any time will fluctuate based on multiple factors including changes in implied volatility of the underlying indices, movements in interest rates, credit spread changes affecting Bank of America, and the probability of the least performing index remaining above its threshold level through the valuation date.

The notes will not be listed on any securities exchange, meaning secondary market liquidity will depend on the willingness of BofA Securities or other dealers to make markets in the instruments. Investors seeking to exit before maturity may face significant bid-ask spreads or may find minimal trading demand for these custom-structured products. The illiquidity profile of non-exchange-traded structured notes represents a material consideration for investors who may wish to liquidate their positions before August 25, 2027, particularly if market conditions deteriorate or individual circumstances change.

Comparison to Bank of America's Broader Structured Finance Program

The Digital Return Notes represent one issuance within Bank of America's extensive structured products portfolio, which spans multiple asset classes, underlying indices, and payoff structures. Bank of America Finance has established itself as a major issuer of equity-linked notes, reverse convertibles, and other market-dependent securities. The use of a shelf registration framework with multiple series supplements permits the company to efficiently bring various structured products to market by updating the pricing supplement while relying on base prospectus disclosure covering the general terms, risks, and mechanics of structured notes.

BofA Finance's approach of utilizing its lower internal funding rates to create profitable structured products reflects a common business model among investment-grade-rated financial institutions. By packaging equity exposures with structured payoff mechanisms, Bank of America converts its borrowing cost advantage into revenue through the spread between public offering prices and hedging costs. The ability to distribute these notes through BofA Securities and affiliated dealers provides distribution reach across different investor channels, including fee-based advisory platforms where dealers may waive certain concessions to remain competitive in the advisory account market.