Bank of America Launches Structured Notes Tied to Russell 2000 and Technology Sector Performance

Product Structure and Pricing Terms

BofA Finance LLC has disclosed terms for Contingent Income Issuer Callable Yield Notes in a preliminary pricing supplement filed on July 20, 2026. The notes are expected to price on July 30, 2026, and issue on August 4, 2026, with maturity scheduled for July 6, 2028. This represents an approximate 23-month term unless the issuer exercises its early redemption right. The notes will be issued in minimum denominations of $1,000 and whole multiples thereof, with CUSIP number 09712GDZ4. The public offering price is set at $1,000 per note, with underwriting discount of $21.75 per $1,000 principal amount, resulting in proceeds to BofA Finance of $978.25 before expenses.

The disclosure indicates an initial estimated value of the notes between $910 and $960 per $1,000 principal amount as of the pricing date, which is less than the public offering price. This valuation gap reflects the structural complexity of the instrument and the risks embedded in the payoff formula. The company did not disclose the total aggregate principal amount expected to be issued. BofA Securities, Inc., an affiliate of BofA Finance, will serve as both calculation agent and selling agent for the offering.

Underlying Asset Performance Mechanics

The notes are linked to two distinct market indices: the Russell 2000 Index (Bloomberg symbol RTY), a price return index tracking small-cap equities, and the State Street Technology Select Sector SPDR ETF (Bloomberg symbol XLK), which provides exposure to technology sector equities. Performance of each underlying is measured on specific observation dates throughout the note term. The starting value for each underlying is established on the pricing date—the closing level for RTY and the closing market price for XLK. The price multiplier for XLK is set at 1, subject to adjustment for certain anti-dilution events relating to the ETF as described in supplementary documentation.

The "Least Performing Underlying" concept is central to the final payoff structure. This term designates whichever of the two underlyings exhibits the lowest underlying return by the valuation date on June 30, 2028. Observation values for each underlying are captured on multiple observation dates throughout the note term, with monthly observation dates specified in accompanying product supplement documentation. These observation values form the basis for determining whether contingent coupon payments will be made, whether the issuer may exercise the redemption option, and ultimately what amount investors receive at maturity.

Contingent Coupon Payment Conditions and Monthly Income

Investors receive a contingent coupon payment of $9.375 per $1,000 principal amount monthly, equivalent to 0.9375% per month or 11.25% per annum, provided a specific condition is satisfied on each observation date. The coupon barrier is set at 70% of the starting value for each underlying. The payment is contingent upon the observation value of each underlying being greater than or equal to this 70% threshold on the applicable observation date. If either underlying falls below 70% of its starting value on any observation date, no contingent coupon is paid for that month.

Contingent coupon payments are made on designated contingent payment dates, which include all monthly call payment dates and the maturity date. The disclosure indicates that monthly payment dates are specified in the accompanying product supplement. Investors should note that the contingency feature means income is not guaranteed; actual monthly cash flows depend on whether both underlyings remain sufficiently robust relative to their starting values. The final contingent coupon payment at maturity is also subject to the same 70% threshold condition, meaning investors may not receive this final payment if either underlying has declined below the barrier level by the valuation date.

Issuer Call Rights and Early Redemption Structure

Beginning November 4, 2026, BofA Finance retains the right to redeem all notes (but not less than all of them) on any monthly call payment date at its discretion. The early redemption amount equals the principal amount plus the applicable contingent coupon payment, if otherwise payable based on the underlying performance on the corresponding observation date. The issuer must provide notice to the trustee at least five business days but not more than 60 calendar days before the applicable call payment date. This call right is entirely at the issuer's option and provides it with flexibility to terminate the notes early if market conditions or internal considerations make redemption economically advantageous.

The call feature fundamentally affects the investor's position. While investors purchase the notes expecting a 23-month maturity, this period may be shortened without investor consent if the issuer chooses to exercise its redemption right. If called, investors receive their principal plus accrued contingent coupon (if any), but no further amounts are payable and the note relationship terminates. The combination of high contingent coupon rates and issuer call rights suggests the issuer structures the product with embedded optionality that benefits the issuer if market conditions move favorably.

Principal at Risk at Maturity: The Threshold Mechanism

The repayment of principal at maturity depends critically on whether the least performing underlying remains above a specified threshold level. The threshold value is set at 70% of the starting value for each underlying. If the ending value of the least performing underlying is greater than or equal to 70% of its starting value on the valuation date (June 30, 2028), investors receive full principal amount of $1,000 per note. However, if the ending value of the least performing underlying falls below this 70% threshold, investors face significant principal loss.

Specifically, if either underlying declines by more than 30% from its starting value by the valuation date, the investor receives direct 1:1 downside exposure to losses in the least performing underlying, with up to 100% of principal at risk. This structure means that in a severe market decline scenario affecting either the Russell 2000 or the technology sector ETF, investors could lose their entire initial investment. The maturity payment also includes a final contingent coupon payment only if both underlyings remain at or above the 70% coupon barrier on the final observation date. This pairing of principal risk with contingent income creates asymmetric payoff characteristics distinct from conventional debt securities.

Guarantee and Credit Risk Considerations

All payments on the notes are fully and unconditionally guaranteed by Bank of America Corporation. This guarantee means that irrespective of BofA Finance LLC's financial condition, Bank of America stands behind all coupon and principal payments owed to noteholders. The guarantee is set forth in supplementary product documentation and represents a credit enhancement feature. However, the guarantee does not protect against market performance risk; it only ensures that promised payments are made when due, assuming no credit event affecting Bank of America itself.

Investors should note that the guarantee does not reduce the principal-at-risk feature of the notes. Even with Bank of America's guarantee standing behind the notes, the payoff at maturity still declines 1:1 with losses in the least performing underlying if that underlying falls more than 30%. The credit risk of Bank of America Corporation as guarantor is therefore material; any deterioration in Bank of America's credit rating or financial condition could affect the marketability and value of these notes. The notes are not FDIC insured and are not backed by bank deposits.

Anti-Dilution Adjustments and Structural Protections

The disclosure references anti-dilution and discontinuance adjustments relating to the ETF component of the notes. Specifically, the price multiplier for the XLK (State Street Technology Select Sector SPDR ETF) is subject to adjustment for certain events relating to that underlying. These adjustments are detailed in supplementary product supplement documentation beginning on page PS-23 of the accompanying materials. Anti-dilution provisions typically address events such as stock splits, dividend distributions, or other corporate actions that could distort the economic performance of the underlying asset without reflecting true market performance changes.

The disclosure does not provide the specific mechanics of these adjustments in the preliminary pricing supplement itself, instead cross-referencing the detailed product supplement. Investors reviewing this offering should consult the full product supplement for precise adjustment methodologies. The presence of these provisions indicates the issuer has considered how to maintain the economic integrity of the notes in the event of extraordinary corporate actions affecting the ETF underlying. The Russell 2000 Index, being a broad market index, may have different adjustment provisions than those for the actively managed ETF component.

Valuation, Trading, and Liquidity Characteristics

The notes will not be listed on any securities exchange, meaning there is no automatic centralized marketplace where investors can readily trade these instruments. The initial estimated value as of the pricing date is expected to be between $910 and $960 per $1,000 principal amount, significantly below the $1,000 public offering price. This valuation gap reflects the embedded options and contingent features that reduce the mathematical present value relative to the offering price investors pay upfront. The disclosure explicitly states that the actual value of the notes at any time cannot be predicted with accuracy and reflects many factors.

Without exchange listing, investors seeking to sell these notes prior to maturity will rely on over-the-counter trading with BofA Securities or other broker-dealers willing to make a secondary market. Liquidity for structured products is typically less robust than for conventional bonds or equities. The company did not disclose expected secondary market spreads or conditions under which it would support trading. Investors should assume that exit opportunities prior to maturity may be limited and that bid-ask spreads in any secondary market could be substantial, potentially resulting in significant economic loss if notes must be sold before the call date or maturity date.

Risk Factors and Structural Complexity

The disclosure emphasizes that important differences exist between these notes and conventional debt securities. Potential purchasers are directed to "Risk Factors" sections beginning on page PS-9 of the pricing supplement, page PS-3 of the product supplement, page S-7 of the prospectus supplement, and page 7 of the accompanying prospectus. These risk disclosures are extensive and cover topics including market risk, credit risk, liquidity risk, call risk, and structural risks specific to contingent coupon mechanisms. The notes carry explicit warnings that they may lose value, are not FDIC insured, and are not bank guaranteed—despite the unconditional guarantee by Bank of America mentioned in payment terms.

The complexity of the payoff formula, the dual underlying exposure, the contingent coupon structure, the issuer call rights, and the 1:1 downside participation above the 30% loss threshold create a sophisticated instrument suitable primarily for investors with substantial financial knowledge. The preliminary nature of this pricing supplement indicates final terms may change before the July 30, 2026 pricing date. Investors should recognize that structured notes of this type often embed significant costs and risks that favor the issuer; the initial valuation estimate of $910–$960 versus a $1,000 offering price illustrates this cost structure explicitly.

Investor Suitability and Documentation Requirements

The preliminary pricing supplement states it is "not complete and may be changed," indicating final terms will be established at pricing. The document relates to an effective registration statement filed under the Securities Act of 1933 (Registration Statement Nos. 333-290665 and 333-290665-01). The preliminary supplement is being filed pursuant to Rule 424(b)(2), indicating a public registered offering distributed through broker-dealers. Certain dealers purchasing notes for sale to fee-based advisory accounts may forgo some or all of selling concessions, potentially allowing those investors to acquire notes at lower effective prices, down to $978.25 per $1,000 principal amount.

Additionally, an affiliate of BofA Finance will pay referral fees of up to $3.00 per $1,000 principal amount to registered broker-dealers participating in distribution. These fee arrangements, along with the underwriting discount structure, reflect the distribution economics of a structured product offering. The disclosure makes clear that no securities regulatory body, including the SEC, has approved or disapproved these securities or made determinations regarding the completeness or truthfulness of the disclosure documents. The offering document explicitly states this is preliminary and subject to change, reinforcing that final terms will differ from this preliminary pricing supplement.