Bank of America Finance Issues Contingent Income Callable Notes Tied to Three Major Stock Indices

Structure and Coupon Mechanics of the Linked Notes

The filing discloses that the Contingent Income Issuer Callable Yield Notes will deliver a monthly Contingent Coupon Payment of $10.625 per $1,000 in principal amount (equivalent to 1.0625% monthly or 12.75% annually) provided that on each monthly Observation Date, the closing level of all three indices remains at or above 70% of its respective Starting Value. This coupon structure is contingent, meaning payment depends on the satisfaction of a barrier condition across all three underlyings simultaneously. The notes track the Nasdaq-100 Index, the Russell 2000 Index, and the S&P 500 Index, with each serving as a price return index without dividend adjustments.

The Starting Values were fixed on the Strike Date of July 15, 2026, establishing the baseline levels against which all future barrier tests and performance calculations will be measured. The filing notes explicitly that these Starting Values may differ from the closing levels on the actual pricing date of July 17, 2026. This temporal distinction is material because it affects the relationship between the observed market price at which investors purchase the notes and the predetermined reference levels used for coupon and redemption calculations throughout the instrument's life.

Principal Repayment Risk and Downside Exposure at Maturity

The filing reveals a critical asymmetry in how the notes treat positive and negative performance scenarios. If the Least Performing Underlying (the index with the worst return among the three) has an Ending Value at or above its Threshold Value—defined as 70% of its Starting Value—then investors receive full principal return of $1,000 per $1,000 in principal amount. However, if any index declines by more than 30% from its Starting Value, the note structure triggers full 1:1 downside participation in losses of the weakest-performing index, creating exposure to potential total loss of principal.

This asymmetric payoff structure means investors receive no upside capture if indices rise, no principal cushion against moderate declines between 0% and 30%, but full downside exposure once losses exceed 30%. The filing explicitly states that investors could lose up to 100% of their investment if the Least Performing Underlying falls below its Threshold Value at the Valuation Date of July 17, 2029. The initial estimated value of the notes as of the pricing date was disclosed to fall between $940 and $990 per $1,000 in principal amount, substantially below the $1,000 public offering price, indicating that the market value of the embedded contingent coupon and call features is negative relative to par.

Optional Early Redemption and Issuer Call Rights

BofA Finance retains an issuer call option, which the filing indicates may be exercised on any monthly Call Payment Date beginning October 22, 2026. This optional early redemption right allows the issuer to redeem all of the outstanding notes—the filing emphasizes "all (but not less than all)"—at the Early Redemption Amount, calculated as the principal amount plus any applicable Contingent Coupon Payment, provided the coupon barrier condition is satisfied on the corresponding Observation Date. This call feature grants the issuer optionality to terminate the investor's exposure to future coupon payments, effectively capping the investor's upside benefit from the high nominal coupon rate.

The call structure creates timing risk for investors. If market conditions improve and the indices rise substantially, the issuer may exercise the call to avoid paying the 12.75% annual coupon over the remaining term. Conversely, if market conditions deteriorate and the coupon barrier is breached, the notes may not be called, leaving investors exposed to the full downside risk scenario at maturity. The filing requires the issuer to provide notice to the trustee between five business days and 60 calendar days before the applicable Call Payment Date, establishing advance notice obligations but not restricting the issuer's exercise of its redemption right.

Observation Dates, Coupon Barrier Levels, and Index Starting Values

The filing establishes specific barrier thresholds for each underlying index, defined as 70% of the respective Starting Value established on the Strike Date. For the Nasdaq-100, the Coupon Barrier is set at 20,651.82; for the Russell 2000, at 2,083.381 (rounded to three decimal places); and for the S&P 500, at 5,300.68. These barrier levels are identical to the Threshold Values used to determine whether principal repayment triggers full downside exposure at maturity. The filing discloses that Observation Dates occur monthly, with the final Valuation Date scheduled for July 17, 2029, subject to postponement under certain circumstances detailed in the accompanying product supplement.

The critical feature of the barrier structure is that coupon payments and principal protection both require all three indices to remain above their respective barriers simultaneously. If even one index falls below its 70% barrier on an Observation Date, no contingent coupon is paid for that period. This "all-or-nothing" barrier design creates concentrated risk around the worst-performing index. The filing notes that if any single index declines by more than 30% (beyond the 70% barrier), the entire investment becomes subject to 1:1 downside participation in losses of that worst performer, amplifying the tail risk for investors in a severe market downturn affecting even one of the three indices.

Credit Risk and Guarantor Obligations

All payments on the notes are subject to the credit risk of BofA Finance LLC, the issuer, as well as the issuer's issuer of the Notes, and Bank of America Corporation, which serves as guarantor of all obligations under the notes. The filing discloses that the notes are "fully and unconditionally guaranteed" by Bank of America Corporation, creating a double-credit arrangement where investors depend on the solvency and willingness to pay of both the operating finance subsidiary and the parent bank holding company. This guarantee structure does not eliminate credit risk but rather substitutes Bank of America's credit quality for that of the finance subsidiary alone.

The filing explicitly states in a risk notice box that the notes are "not FDIC insured," "not bank guaranteed" (in the FDIC sense), and "may lose value." This language clarifies that despite the guarantee from a major banking institution, the notes receive no federal deposit insurance protection and investors face both market risk through the index-linked structure and credit risk from the guarantor. In the event of an Event of Default as defined in the senior indenture, the filing indicates that the Redemption Amount would be calculated as though the acceleration date were the Maturity Date, with the valuation referencing the third Trading Day prior to acceleration, potentially locking in unfavorable index levels if defaults occur during market downturns.

Pricing Terms and Underwriting Discount Structure

The filing establishes a public offering price of $1,000.00 per $1,000.00 in principal amount of notes with an underwriting discount of $1.50 per note, resulting in proceeds to BofA Finance of $998.50 per note before expenses. The filing discloses alternative pricing for certain fee-based advisory accounts, noting that dealers purchasing notes for sale to these accounts may forgo some or all of their selling concessions, with the result that investors in such accounts may purchase the notes at $998.50 per $1,000 in principal amount, receiving partial credit for the underwriting discount at point of sale.

The estimated initial value of the notes as of the pricing date was disclosed to range between $940 and $990 per $1,000 in principal amount, substantially below the par public offering price. This valuation gap indicates that the net present value of the embedded coupon payments and call feature, after adjusting for the barrier conditions and downside risk, results in a theoretical note value significantly lower than the offering price. Investors purchasing at par are paying a premium relative to the disclosed estimated value, with the difference reflecting the issuer's profit margin and the cost of the underlying hedging program required to risk-manage the issuer's obligations under the notes.

Registration and Product Documentation Framework

The filing is submitted as a pricing supplement under Rule 424(b)(2) of the Securities Act of 1933, relating to effective Registration Statements numbered 333-290665 and 333-290665-01. The preliminary pricing supplement references an accompanying prospectus dated December 8, 2025, a Series A Prospectus Supplement dated December 8, 2025, and Product Supplement EQUITY-1 dated December 8, 2025. These documents together form the complete offering documentation for the notes, with the pricing supplement representing the final component that communicates the specific terms, pricing, and index selections for this particular issuance.

The filing emphasizes that the preliminary pricing supplement "is not complete and may be changed," indicating that final documentation remains subject to completion prior to the expected July 17, 2026 pricing date. The document also includes a standard regulatory notice that neither the SEC, any state securities commission, nor any other regulatory body has approved or disapproved the securities or determined whether the disclosure is truthful or complete, with an explicit statement that any contrary representation constitutes a criminal offense. The notes will not be listed on any securities exchange, meaning investors will have limited liquidity and secondary market trading is dependent on the willingness of BofA Securities, Inc., the calculation agent and selling agent, to make a market in the instruments.

Calculation Methodology and Events of Default Framework

BofA Securities, Inc., an affiliate of BofA Finance, serves as both the Calculation Agent and the Selling Agent for the notes. The Calculation Agent is responsible for determining Observation Values (defined as the closing level of each index on each Observation Date), computing Underlying Returns, identifying the Least Performing Underlying, assessing whether barrier conditions are satisfied for coupon and principal calculations, and managing all mathematical computations required throughout the life of the notes. The filing does not disclose specific methodologies for adjustments in response to market disruptions, index discontinuations, or other operational risks, referring instead to the product supplement for detailed operational procedures.

If an Event of Default occurs with respect to the notes, as defined in the senior indenture relating to the notes and in the prospectus, the amount payable upon any acceleration permitted under the indenture will be equal to the Redemption Amount calculated as though the acceleration date were the Maturity Date and the Valuation Date were the third Trading Day prior to acceleration. This methodology means that in a default scenario, the final index levels used to determine whether investors receive full principal or full downside exposure are not the levels at the time of default announcement but rather the levels three trading days before, potentially capturing a very different market environment. The filing provides no elaboration on the rationale for this three-trading-day lookback or the circumstances under which it may be modified.

Market Context and Index Starting Values at Strike Date

The filing establishes that the Strike Date for the notes is July 15, 2026, at which time the Nasdaq-100 Index closed at 29,502.60, the Russell 2000 Index closed at 2,976.259, and the S&P 500 Index closed at 7,572.40. These Starting Values serve as the reference point for all barrier calculations and return measurements throughout the three-year term. The filing explicitly acknowledges that "the Starting Value of each Underlying may be higher or lower than its respective closing level on the pricing date," creating a potential disconnect between the risk parameters established at the strike and the market levels observable to investors on the actual pricing date two trading days later.

The decision to use a strike date two days prior to the pricing date is standard market practice in equity-linked note issuance, allowing the issuer and underwriters to finalize legal documentation and risk hedging arrangements without exposing the issuer to market risk changes during the documentation period. However, this structure means that investors observing pricing-date market levels cannot directly infer the relationship between current index levels and the 70% barrier thresholds without reference back to the strike-date closing levels disclosed in the prospectus. The filing provides no forward guidance on how the issuer anticipates market conditions may evolve or how index performance relative to these starting values may influence the probability of coupon payment or principal loss scenarios during the three-year term.